Lion 10.7 Only Boots in Safe Mode. Is This a Hardware or Software Issue?

Question

Hi. On my iMac late 2009 i7 8GB bought last March only. I reinstalled Lion (I didn't erase the whole disk because I have Boot Camp Windows and I have filed there) and it can only boot in safe mode if I use the Mac's built-in EFI bootloader (where you have to press option on restart) menu then press shift after choosing the iMac OS X hardisk. I've been trying to fix it for around 4 days now today. I'm tempted to take it to the authorized Mac shop but that could take weeks to months in our country. If I let it boot normally, it would seem to have a kernel panic and would stop at the white/gray screen. Verbose mode showed that is stopped at something 10 of these like: nstat fail.
Is this a GPU hardware problem, specifically the 3D element of this 4850M GPU? I'd like to do load each kext, each extension manually but I can't find them in Lion. When I use the Lion DVD or the Lion Recovery partition, it's very sluggish, every click and process takes 20 seconds to minutes. If I try to boot in Linux, Snow Leopard DVD or Snow Leopard external hardisk, there seems to be a kernel panic. It's either just a black screen or a garbled screen.
I want to erase/format the iMac's hardisk but in Safe Mode, it can't be mounted even if I use Disk Utility. If only there's a way to force it to mount, I can save some Windows 7 file to one of my external hardisk or flash drive. Does anyone know of an app or program that can mount NTFS files on Lion's Safe mode?
If it's a Lion bug, has Lion somehow corrupted the Mac's built-in (hardware not the EFI partition in the hardisk) EFI or somehow corrupted the Mac or GPU's ROM? Could it be a new OS X virus? Should I then perform in Safe Mode to flash the GPU ROM and the Mac's ROM again (I have the latest)?
Do you think if I erased the whole drive, reinstalled it again with either Snow Leopard (assuming it doesn't boot into a garbled screen) or Lion things will go back to normal?
Has anyone experienced something like this? What was the culprit (was it a hardware or software issue) and what was the solution?
Gbu.

Answer 1

Hi thanks for all the concern and replies. I've tried all that.
I had just got it back from the shop last Friday. It was there for around two weeks. It was a faulty GPU (when you see garbled display that's consisten when booting it the GPU). I have a strong feeling it's related to the Lion install 10.7 or 10.7.1 and may be similar to reports of Mac laptops overheating. It's good the GPU is removable, it might have taken 3 week or a month if it had been the whole board.
It's a blessing in disguise though as with all or most cases because I also got to have the LCD replaced for excessive backlight bleeding (in my opinion), the dead pixel from the previous LCD isn't there anymore (though under the glass there're some smudges but nothing crucial). The backlight bleeding is still the same though in my opinion but at least it's new.
It's a great thing I bought Applecare. I didn't buy it for the iPhone because that's more durable (my iPhone 3G's 3 years old now and it's still solid. Although there are scratches and a crack at the back at the bottom, got sqeezed under the table I think when I sat). I think Applecare is a good recommend for things that get hot like desktop and laptop Macs(are the iOS considered Macs btw?) which are twice or thrice the price of iOS devices.
Gbu.