Hi, I can appreciate your grief. I don't know if you've read back through this thread, but the problem is with the ATI drivers that have shipped for these iMacs since 10.6.3. Apple has never fixed the bug in those drivers. (Shame on you Apple!) But!!! There is a solution, and that is to put the 10.6.2 ATI drivers back on the machine after you've upgraded it. I did that and I'm currently running 10.7.2 and it's been rock solid with those old 10.6.2 ATI drivers. Here's a link to the process. Good luck with that, if you choose to try going back to Mac OS. I love Lion. Looking forward to seeing if the 10.6.2 drivers will work with Mountain Lion. Here's the original post of the solution to this. (Don't know how to link to it, so I copied it whole.)
I think I'm solved the problem. By the 'solved' i mean the main reason, not the temporary solution. First I would like to give you some information that may be helpful:
1. My iMac is: iMac8,1 with gpu ATI Radeon HD 2600 Pro;
2. You must have to installed mac osx 10.6.2 update (not newer) ;
3. This is very risky solution, so please create backup;
As you now the problem it's only caused by the software - probably the gpu driver. In osx the gpu drivers is in kext files, placed in /System/Library/Extensions. Here is steps that I made to restore old drivers from 10.6.2 to 10.6.6:
1. On the 10.6.2. system make backup of /System/Library/Extensions (pendrive or external drive is the best place);
2. Download the "Kext Helper Tool" from http://cheetha.net/
3. Run the 10.6.6 update;
4. After reboot run the "kext helper tool".
5. Drag and drop to the Helper those files:
ATI2600Controller.kext
ATIFramebuffer.kext
ATISupport.kext
6. Type password and click Easy Install.
7. Reboot.
By doing this we insert to the system the driver in the older (good) version 1.6.6 - the newest version is 1.6.26.
Several explanations to the Nvidia GPU users: in my system there are no kext files named nvidia or similar, so i can't tell you wich you must restore.
When apple give us the the 10.6.7 update probably you must have to restore old drivers again.
My system is worked fine from three days, without smc fan control and similiar tools. The "only" risk is that your system will not boot up.
Sorry for my English, i write to you with google translate 🙂
Regards from Poland