My Imac has black and white vertical lines

Question

Riddle me this Apple...
A few months ago, my 2008 Aluminium 24inch Imac locked up and exhibited space invader style pixels all over the screen.
After rebooting, it was fine for a while and then it would freeze again and I'd get the same Atari style pixels appearing, and everything would be frozen.
Then, most reboots after that, I would get vertical lines in groups of three, alternating black and white squares as in the photo.
I called Apple here in South Australia, and they said "it's your graphics card, and it will cost $400 to fix and we need it for a week".
Not wanting to do that, I bought a $15 firewire cable, booted the Imac in T mode and used my PC laptop running macdrivepro to save all my files onto a 500gig backup drive, and then proceeded to fix the corrupted kext files and most importantly delete the recent flash player update which I believe was causing the problem.
Booted her back up, and she ran perfectly. For a few weeks, until it started again.
So I re-installed the Leopard operating system from the original disks, and that fixed it. $15 is better than $400.
Now, a few months have passed, and the problem had come back again, now that I have added more stuff on my computer.
This time however, I chose to wipe the drive completely and do a fresh install of Leopard, and then upgrade to Snow Leopard.
The problem is that it won't boot from the CD drive anymore, won't boot from a thumb drive, won't boot in any mode except T mode, but then it has these lines on the screen again and eventually I get the kernel panic happenning and it wants to be shut down.
Every time I start the computer, these lines IMMEDIATELY appear. I've tried resetting the Pram, tried changing memory and have now resorted to surgery.
I've taken apart the Imac, yes I hear you Apple...you guys thought that we mortals wouldn't delve into the depths of your finely machined systems, however, some of us do own micro torx head tools to remove those pesky screws, and yes, a razor blade does lift up the magnetically attached screen glass without having to use suction pads.
So once inside the temple of doom, I removed the hard drive, and dropped it into a hard drive dock.
After days of messing around with it via four other MAC computers, running Tiger, Leopard and Lion, we have still not been able to install an operating system back onto this drive.
Does anyone have any insight into what these lines actually are? Every one I speak to says a different thing...
"It's the graphics card", "It's the hard drive", "It's the cable that connects the LCD screen", "It's the motherboard", It's the screen itself", "It's a corrupted bios" etc etc..
But if it's any of those things...then why did it run perfectly after I fixed it the first time?
Any and all help is greatly appreciated.

Answer 1

Hi BDAqua,
I appreciate you taking the time to reply, and for the suggestions.
My spider sense was tingling, as were my eager fingers to login and read your reply, in fact I was almost salivating at the thought of crushing those Apple reps with a swift blow from one of my megalithic old 4gig internal drives, or better still, perhaps shooting my old DX266 sporting a massive 256k HD and 4mb of ram, fully loaded with Encarta and Windows 3.11 out of a cannon and straight into Steve Jobs bedroom window, with a note saying..."How'd ya like them apples..".
But alas, my Aquatic friend, I am in need of a functioning operating system to be able to do any of those magical tricks you suggested (insert frown face here)..and yes, when I finally opened up the Imac and peered inside, a moment not unlike Indiana Jones peering down into the depths of the Well of Souls, I suddenly realised that an Imac might look impervious to heat vision and thermonuclear devices on the outside, but inside they can still gather as much dust as my infinately useless ZIP drive that I bought back in the late 90's, thinking it was the best thing since the invention of microsoft paint...awesome program by the way guys..
Getting back to the problem at hand, the issue really is that I have, perhaps stupedly, reformatted the 500gig WD drive via a hard drive dock, which is really a lot like one of those early 1950's cassette drives you find in vintage cars..
And upon returning the drive to the Imac and re-assembling it WITH REAL SCREWS, not titanium-alloy fingerprint encoded ones like you would expect to find in Iron Man's suit, I could only boot the poor thing into T mode. No other modes were available, and believe me, I tried all of the alphabet...even the "C" button, which if you ever watched an episode of Knight Rider called Knight of the Juggernaught, did not turn my computer into a convertable..
By now you're probably sensing that the irony of all of this is that I am typing this message on my Windows 7 upgraded HP laptop, which sounds not unlike a jumbo jet taking off at times, the fans are so loud, and among other things, it keeps telling me it is not genuine, even though I paid good money for a proper copy to free me from the painful experience which was Vista, and so in a sense, microsoft is playing a small part in the desperate rescue of it's far superior, yet broken down and busted arch enemy...I bet somewhere in it's RAM, it is smiling in little ones and zeroes, while it hides behind a free copy of AVAST, hoping one of a billion nasty viruses don't come knocking on the kernel door..
The next round of drinks goes to the man, woman, child or droid that has any other suggestions that could allow me to participate in some of the ideas put forward by our very knowledgable watery friend..as alas, I do not have any of those options available to me.
Today's assignment is.. how do we install an operating system on a formatted external drive. Sounds easy doesn't it...I've read many articles, but in practice it's proved as elusive as Bigfoot.
I just cannot make this hard drive understand that there is no spoon...
EdStraker