My iMac cursor turns into a 1/2" square made up of small lines. There are also very thin lines on different portions on the screen.
Sounds like a hardware error in the graphic card. When you make a screenshot with the thin lines, do you still see them on the screenshot?
I have the same problem. I can't see the cursor when I take a screenshot using Grab utility.
Try trashing your Desktop preference file. You can find the file here:
Macintosh HD> Users> Your Username> Library> Preferences> com.apple.desktop.plist
Drag the file com.apple.desktop.plist to the Trash. Empty the trash and restart your iMac.
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