Anyone ever see this problem before???

(AKA...welcome to bizarro world)
We picked up a 500MHz iBook (Snow, dual USB) from a recycler because he showed us photos of it's good screen and thought the unit would be good for parts. We were really expecting a piece of junk but when we received the unit we were surprised that it's almost in mint condition.
We turned the unit on and here's what happens:
1. White background with Apple logo shows up, no spinner. Sits like this for about a minute.
2. Suddenly Apple logo is replaced by a rectangle that looks like it has random colors in it.
3. About 20 seconds later, the spinner shows up, and then the system boots.
We thought something was wrong with the boot disk. We've seen a lot of school systems and companies mess with these systems by replacing the Apple logo with one of their own....cute trick if they do it right....if they do it wrong they hose the system. We booted off of a Firewire disk w/Tiger on it and the unit ran fine. Ran AHT on the unit and it passed with flying colors. We decided someone must have messed up the hard disk so we would proceed with a complete repartitioning of the HD and then an install of Panther.
Did the complete re-install of Panther. Unit worked great!!1! Proceeded to download ALL the updates for the unit. Suddenly, the system starts acting flakey.It's dropping internet connections, and can't complete downloads. We reboot. NOW the original problem re-appears (i.e. wierd boot w/scrambled logo). We suspect the disk is erratic and on its way out. We re-attempt the complete installation...once again, it works fine AFTER we do a CD based OS install, and yet once again after attempting software updates problems are re-introduced.
We've done updates on many 500MHz iBooks and completed Panther online software updates without a single problem. There's one catch, and this is the only thing I can think of that's different with this particular system: THIS UNIT HAS A COMBINED DVD-ROM/CD-ROM reader on it...not a CDROM or CD R/W.
Anyone else ever see a problem like this before?

OSX Fan:
Congratulations on the mint condition iBook G3.
I would first try re-installing 10.3.9 Combo Update. Remember to Repair Dis Permissions in Applications > Utilites > Disk Utility before and after installing.
I suspect that the HDD is failing or failed. As you may know, the Verified S.M.A.R.T Status reading is not as accurate as the Failing or Failed reading. This computer was introduced in May 2001 so it is well past the 3 to 5 years average life of an internal HDD. Download and run SMART Utility - 2.0.2 and see what that tells you. If the computer boots via firewire that seems to indicate that it works fine. If the issue is in the Panther upgrades, the Combo upgrader should resolve that issue.
Please let us know how the above recommendations work, if you try them.
cornelius

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