Early 2008 iMac (8,1) randomly goes into sleep mode

Hey,
My early 2008 iMac (8,1) on 10.8.2 goes into sleep mode by itself. I've played around in Energy Saver, tried resetting SMC, NVRAM, replaced HDD, reformatted HDD, installed smcFanControl, reinstalled Snow Leopard, Lion, Mountain Lion. None of that worked. Took it to the Genius bar, performed some diagnostics tests and they said everything worked properly. Does anybody have the same problem? I can still use the computer for general computer use (light web surfing and e-mailing), but it seems to go into sleep mode when I have a lot of applications open and especially when watching videos. I've tried researching this problem, but I've haven't found a definitive answer. Right now, the Genius that I've been talking to thinks it may be the RAM. I'm waiting on new shipments of test RAM to arrive at the Apple Store for him to properly diagnose.
Thanks,
Jason
iMac (8,1)
2.8 GHz Intel Core 2 Duo
2x2 GB 800 MHz DDR2 SDRAM
ATI Radeon HD 2600 Pro 256 MB
1TB 7200 RPM SATA ST1000DM003-1CH162
If you want to read the whole time line, I've included it here. I apologize for it being so long.
At first I was running Lion (10.7.5) and the computer would enter sleep mode whenever I was doing anything with video. For example, watching YouTube videos and chatting on FaceTime. And funny enough, I distinctly remember watching a bunch of movies with VLC and the computer did not go to sleep (Although, this is not true anymore). I could wake the computer up and use it, however within a few minutes the computer would re-enter sleep mode. The computer seemed fine and I could access all of my files. Tried resetting SMC and it did not resolve the issue.
I made a Genius appointment to see if they were familiar with the issue. The iMac passed the in-store diagnostics test; it said all the components were functioning properly. He told me to bring it home to do a fresh re-install of my OS and then run my computer to see if the problem persisted. I took it home and reformatted my HDD with a 35-pass erase, re-installed Snow Leopard (10.6.8) and declined to transfer any backups from Time Machine. I was using a fresh system and sure enough, the problem persited. Tried doing the same thing again but with Lion (10.7.5) and still no luck. So I made another appointment and it passed the in-store diagnostics test again. I let them keep the computer for a 24-hour diagnostics test. They told me they would diagnose my computer with the OS on my HDD as well as a copy of OS that the Apple store deemed 'good' on an external HDD. The Genius called me and told me that my HDD failed their 24-hour diagnostics test and recommended I replace it. I initially had a 750 GB HDD, and the Apple Store could only offer me a 500 GB HDD ($200). I opted to take my computer to Carbon Computing, an authorized dealer in Toronto, to have a 1 TB Seagate HDD ($170) installed with no OS on it. I brought it home, performed another 35-pass erase and installed Snow Leopard. Problem still persisted. Repeated with Lion, still unsuccessful. Looking back, I was so excited that I just had to replace the HDD to fix the problem, I forgot to ask the guy if he could recreate the issue.
I began to suspect that it was a heating issue. So I installed Temperature Monitor and smcFanControl, and cleaned the fans as much as I could without taking the computer apart. Without smcFC on I tried to recreate the problem and I noticed that the Power Supply Position 1 reached 95 degrees Celsius, and Graphics Processor Temperature Diode reached 97 degrees Celsius before entering sleep mode. I don't know much about temperature sensors and what they monitor specifically, and so I couldn't draw any conclusions from that data. I turned on smcFC and cranked the optical drive speed to 2000 RPM, HDD to 3000, and CPU to 3000. The computer still went to sleep but the temperatures were below 90 degrees Celsius before entering sleep mode. I've tried researching here and on the internet about normal operating temperature ranges of iMacs and generally found that most do reached that temperature but they do not go to sleep mode.
Then I thought it may be a problem with Lion so I upgraded to Mountain Lion. The issue still persisted. Tried resetting SMC and NVRAM, did not resolve issue.
I called the same Apple Store explaining to them that their recommendation of replacing the HDD did not resolve the issue. They told me to bring it in and have them check it out again. I went through the same process I did before; the iMac passed all of their diagnostic tests. The Genius told me this time he will test out the RAM. He called me and told me that he could replicate the problem and so he proceeded to put in a stick of 'good' Apple RAM, but the computer would not work. He said the 'good' Apple RAM was damaged, either before or in the process of putting it in. He plugged in my old stick of RAM and the computer worked. He tried to recreate the problem and claimed that the computer ran for over 24 hours with an existing movie on my HDD playing and it did not go to sleep mode. However, once I brought it home I played the same movie right away and it turned off 17 minutes into the movie. Tried resetting SMC and NVRAM again, ran the movie again, still went to sleep.
And that's the story for now...

Now to find out WHY it does it at home only. How hot is it at home? Have you checked the AC current/voltage at home?
Well they were able to replicate the issue at the Apple Store the second time I left my computer there. Anyway, we don't have any heating on at my house at the moment. It's usually from around 20-23 degrees Celsius (72-75 F). Temperature Monitor says ambient temperature is 30 degree C though...
I'm not really sure how to check the AC current/voltage at home, but my computer worked before I moved it. So I'm not sure if that is the issue.
I normally only have speakers set up to my computer and a wired keyboard. The speakers are powered separately. I would assume that at the Apple Store only the power cord and wired keyboard are connected.
What is the Power Supply Position? And what does it do?
Thanks for your help!

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