same thing happens to me
Reading your post I have tremendous deja vu sensation!
Same thing happens to me circa august 2008 (I bought the computer on March 2007) I can fix it -relatively- changing hard drive and installing SMC Fan Control, it work very well for a year aprox. but now I can´t turn it on, even from the OS CDs.
SAT says is a motherboard+graphic card issue, and believe me, it´s not a cheap reparation (circa 800)
My advice: if your computer are in warranty, call SAT inmediatly, you can´t fix it by your own (maybe yes, if you are one of these real hardware geek magician

).
If it´s out of warranty... well, Apple recently lost a trial in France because the vertical lines problem (they have to repair for free 2 Imacs, judge says that´s "intrinsecal problem" of this machines) and now offer a warranty extension, but only for 17" machines (I talk to them last week) so you can pay SAT (abusive price, I think), try to get 2hand pieces on ebay, cry on Customer Service (don´t work) or fight them on court.
I choose last option: very similar problems, vertical lines, kernel panic... (equal, to me, but im not an hardware expert, just waiting for diagnosis) appears on a lot of 20" and 24" computer, IntelCoreDuo and IntelCore2Duo; serial numbers are in the same range of problematic 17" machines (starts with W86) but they wash their hands. I live in Spain, and warranty reclamations here are always completely nightmare, but this is worst than ever. Very disappointing and coward attitude, they only try to fix things when exist a legal precedent and their image become little dirty (=lost their money).
Now, Im triying to find more affected people and triying to make a correlation between bad machines and serial numbers, like 17" people does.
My tips:
Late 2006 24" Intel Core2Duo.
Serial number: W8642****GN
Please, contact me with your machine tips, could be really helpful in my reclamation. Also, I began a facebook group and a blog -in translation process to french and english too- I try to make all possible noise, and it will be easier if are more people involved.
Thank you!