login screen shows weird patterns and a huge black ring

iMac late 2010

OSX 10.8

When starting the system the white screen with apple logo appears without any distortion. When system is changing to the login screen a black ring appears almost filling the whole screen, the text under the user icons appear several times overlapping themselves, furthermore there are blocks of tiny vertical stripes the cursor is followed by similar patterns.

If not logging in the machine sits there forever without crashing. When logging in, the screen appears scattered like a broken mirror. After a few seconds the system crashes and boots itself. Apple Hardware Test AHT detects no problems. Reseted NVRAM but didn't change for better.

When connecting a MacPro using the iMac as simple Display everything looking fine - therefore I'm thinking the graphics card is fine?