Quick update if this could help you:
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My problem was not permenant and this made me get a feeling that this could be software or OS related, as I was able to get back into the OS intermittenly (though the blackouts started happening too often)
Before heading to a local service center, I called up AppleCare folks, and they were very very helpful, in fact they guided me through three seperate steps, and I had to go through the last step as the first two steps didnt work. (Before you do this, some how take a complete backup of your important data, may be press shift and boot into safe mode) or try to log in when you dont have the vertical line problem.
Mine was intermittent; the problem just disappeared for sometime after couple "bar" screen reboots and then just sprung back into action into mountain lion, just to again suddenly crash and show me a purple screen and and me left out with no other method but ot hard reset it,by pressing the power button.
Now to the steps which AppleCare folks told me on phone:
1) Unplug everything, including the power cord and leave your iMac for about 1 - 2 minutes and then plug back in and it should sometimes work fine (they call this SMC reset I guess) - Didn't work for me
2) Try the following combination and mostly from a wired keyboard (Command+Option+P+R) just before booting; and your iMac should restart twice or thrice ( do not take your fingers out of the keyboard until your iMac reboots atleast thrice). Then take your fingers off the keyboard and you should be able to boot, this method effectively resets the NVRAM or PRAM which supposedly has key settings for your monitor and other stuff - This didnt work for me either (if you are using a Windows keyboard (USB) then you should use Windows Key+Control I guess, not too sure please check on google) - Quick thing is my system was booting fine meanwhile, but I still tried all this just to be sure that this could stop the repeated problems from occuring again. After I tried this methold and started working again, boom the entire screen went purple (it has nothing to do with this method though, I expected it to crash)
3) 🙂 Now just around 5-6 hours back I again called Apple Care and told them my issues, and they told me to try to the last resort option, that is complete install (Erase the Hard disk etc), but this will have to be done via "Internet Recovery" if you have one available on your iMac, this method not only formats your hard disk but also works on your firmware and other key "boot" components on your mac. - Worked giving it a all fresh start, everything happens from Apple Servers, best is do not try to from locally installed copies so that everything is fresh.
Here are the steps:
a) Backup all the data ( if you cannot find a way out 🙂 )
b) while your iMac boots press the keys Command+Option+R, this would directly connect to you Apple Serves bypassing your local boot system, then it will ask you to connect to your WiFi ; if you have a ethernet that would be good. It would take approx 15 to 20 minutes to download the inital software from Apple Servers (depending on your link speed, I have 4Mbps ), once the "rotating icon of globe" is finished you are taken to a screen to select your language and then the folloiwng steps:
c) Select Disk Utility, and then format your partition, in Mac OS Journled file system, with Erase option.
d) once it is done come back to the previous screen and select Reinstall the OSX (or mountain lion) in this case,
but to my surprise once I selected this options, I was shown a screen of OSX Lion and then, when I check with Apple Care they told me that, this is because of my initial system being preloaded with OSX Lion. Anyway I had a backup copy of Mountain lion on my USB and I knew no need to worry, with a geniune purchase.
e) thats it! the rest of the process completes again on your intenet speed (as the file size for lion is 4.2 GB approx) and my system has booted into Lion OSX fresh, I dont mind this now because I have a backup and I will restore it later, after I observe this system for some time 🙂 as of now its stable and keeping my fingers crossed.
I'm plannig to upgrade to mountain lion in one or two days after I make sure that my system is stable. If this works then the problem was with the earlier software I had on my system.
Will update this if I have any issue or not! 🙂 Hope this helps.