I had the same artifacts problem on my iMac 24" with GeForce 7300GT onboard, Lion 10.7.5; it started like in the pic quite a week ago and got worse day by day, till the system used to hang just after rebooting.
Once I could succesfully login I removed the GeForce kext (all of them) and it became usable after rebooting... but I obviously lost all the "video" capabilities, from desktop effects to movie playing as graphic acceleration had been dropped.
I reinstalled SL but it could not get any far than the language selection window... it crashed every time I restarted! artifacts were also visible during installation!!
So I opened my iMac! cleaned up GPU and processor from the old thermal paste and applied a new one; removed the dust off the blowers, put it back together...
Tadah! It worked like a charm!
after restarting the system I could go through the installation steps, then I installed a fan/temperature manager app (there are plenty of them, just google it!) and pushed CPU blower speed up to 2000 rpm...
it looks stable, no artifacts, no crashes.
I think I'm staying with SL as the problem started with Lion, and with Lion I also had my MacBookPro GPU fried after a couple of months I installed it... just a coincidence?