Severe graphic problems on Intel iMac (2007)

iMac 2.16 GHz Intel Core 2 Duo (white, 2007)
Works OK in OS X 10.6.7 in Safe Boot mode, but with regular startup is unusable and experiences severe graphic problems and freezes, such as:
Spurious lines across the screen and in various application windows.
Mail window breaks up into a patchwork and mail refuses to quit
Safari window displays severe artifacts and locks up
Dock severely distorted; some icons extremely garbled and unrecognizable
We tried erasing and reinstalling OS 10.6, up to 10.6.7, restoring only the primary user, but the same problems persist. No applications other than from the installation disk were installed.
iMac originally came with OS X 10.4. Upgraded to 10.5, then later to 10.6. Since upgrading to 10.6 (now 10.6.7), have had increasing problems with display artifacts. Now it's so bad we can't operate unless we go to Save Boot. Then, it seems to work fine, but Safe Boot turns off sound output, so iTunes and other audio capabilities are lost.
Since it works OK under Safe Boot, what items could be removed to restore proper operation?
Is there a way to restore sound output while operating in Safe Boot?
Is it just a bad idea to upgrade to MacOS X 10.6 on a computer that came with 10.4?
I'm considering erasing and returning to the original MacOS X 10.4 installation, but I'm concerned that photos in iPhoto will not be compatible with the OS 10.4 version of iPhoto.
Hope someone can help. Thanks.

Thanks.
Or buy a new one.
It passes the Apple Hardware Test, as well as TechTool Pro hardware tests. But clearly something is wrong, and worse than when it was even a few weeks ago. I even tried erasing and reverting Tiger, and it was better, but still had some obvious artifacts and stability issues. Apparently not a drive problem either, since it occurs when running from various external drives as well.
Appreciate the help.

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Message was edited by: CamCunning

Hi,
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Severe graphic problems on Intel iMac (2007)

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