That is odd... I hardly ever come to this forum, but today I did.. wanting to post almost exactly the same question.
My 2.16Ghz iMac 24"with 2Gb SDRAM in it does almost the same. Strange lines appear, sometimes only in a window, and sometimes across the screen.
The weirdest thing is that I can take screenshots of these lines:
http://www.hofhuis.org/meuk/scherm.png
My Mac tends to crash when I minimize windows during the genie effect (yellow ball).. it crashes halfway the effect. It also freezes when I do processor tough calculations, like converting movie files etc.
It feels to me that it happens when me Mac gets more used and warmer. After I start it up, all is fine. But after a while the lines start to appear, then a while later windows start acting up, and then it just freezes.
And it is getting worse and worse with time... I tried installing a new OS, but no dice... it even gave the lines while starting up from the installation DVD.
Ehm, this actually turned into a whole seperate post.. sorry 'bout that.