You're likely correct in that it could be a failed/failing graphics card but you could try a couple of things that might help, if you haven't already. Sounds like you have backup organised - you may need it.
Are you really running 10.8.2, as per your profile - 10.8.4 is the current version? Applying the combo will bring you up-to-date with the OS: http://support.apple.com/kb/DL1659
Try a Safe Boot: http://support.apple.com/kb/HT1564 - once booted restart as normal from the Apple menu.
Boot into the Recovery HD and run Disk Utility to see if any repairs are required. Restart holding down Command = r - more info here: http://support.apple.com/kb/HT4718
Thanks Paul. I am on 10.8.4, I will update my profile. Good suggestions. Unfortunately with the monitor not displaying properly when I tried them, they did not help as the screen was scrambled..
I took the iMac into a local Apple support tech today. He confirms it definitely looks like fried graphics card. If so, the 600 to repair is not worth it so alas I may have to wait and upgrade to a new iMac. I will be checking to see when the new ones may be coming out... and possibly wait...
Thanks again for quick response.