If you are near an Apple store you could always take it to the Genius bar and let them look at the problem.
If not hear are some thoughts.
You have determined that there are lots of page outs which tends to suggest you have not enough memory for the tasks that are running on the system.
1. You have a rogue application that is using too much memory, or the data it uses has been corrupted and is causing the application to use more memory than it should normally do.
2. You have a rogue application running on there that as been installed without you knowing, unlikely though.
3. You just don't have enough memory to run the system the way you are doing.
4. You have a very fragmented disk, this would slow the system but perhaps not load up memory, again with the file system used by Apple this is unlikely.
There will be others but thats all for now.
Due to you being unable to determine the exact cause of the problem these are some suggestion.
Before you contemplate performing any of the following suggestions be sure to have verified backups in place.
a. 'Archive and Install' the system, be sure to have all the installation media for iLife and any other Apple and Third party applications available to replace those also.
Instruction at http://support.apple.com/kb/HT1545
b. Run an Anti Virus program, a few free ones about, Sophos and iAntivirus are two.
c. Run a clean install were you wipe the disk and start a fresh install of everything, move user data back across from your backups. This would defragment the disk as well as replace all the software.
This is one way, there will be instructions on the Apple web site, just could not find a link.
d. Buy extra memory as seventy one suggests, see my previous post with a link to Crucial, they can scan the machine and give you recommend upgrades. 4GB total would be good, not sure how much Ram your machine will take. It is relatively inexpensive, easy to fit in most iMacs from 2007/2008, again not sure about other iMacs.
Be sure to check the OCW website also. Usually the more Ram the better.
I would go for more Ram memory as a start, a lot easier than rebuilding the software.
On a last point you mentioned in your first post that you were told that the disk could be going faulty, although you have tested that with the SMART data and Disk Utility it is still a possibility. I have seen disks drives have bad sectors but the error correction in the drive was so good that the drive corrected the errors. Correcting the errors takes time and slows the system down. Unlikely with the tests you have run but not to be ruled out completely.