I'm with Gord...I think it's that ATI had a bad batch of X1600's and it's corrupt or bad onboard video card memory. It could also be bad solder joints, thermal paste, etc.. but the damage from the first time it happened has likely caused irreversible damage to the involved components.
I'm running SMC fan Control and it helps, but you can forget about playing video games. Not for very long at least. If the vid card gets too taxed, the screen will either go black (tho the OS is still running), or the machine will just freeze up. It's all due to the faulty vid card, I'm convinced. I just use it for every day applications, and do nothing that I want to do on the machine. I'm hoping for a new iMac soon, and doubtfully will be able to get any money for this machine on eBay. Parts? The parts everyone wants is the part that is bad on my machine! Plus, my screen has some light scratches on it from my toddler son messing with it.
When I get a new one, I'll probably put a bullseye on the machine and squeeze off a few rounds in the back yard. That would be worth the $50 I'd get on ebay for it.
And for the record... it's the ONLY Mac of MANY that I've ever had a problem with.
Jason