iMac Scrambled Graphics Issues - Hardware or Software? I have a 27" iMac, Mid 2011 (3.4Ghz i7, AMD Radeon HD 6970M 2GB) and I am experiencing the following intermittent issues, which are solved each time by a restart:


When watching video with either Quick Look or Quicktime the video will break up and be overlaid with either large blocks or lines of pixelated colour often pink and green.
Often when this happens the type on the menu bar will also break up and become sort of faded looking and hard to read.  Desktop items may also break up becoming unrecognisable.


Here are some images of what this looks like:





I am wondering if this is a hardware or software issue?  

When I first got the iMac it had Snow Leopard installed.  Not long after I upgraded to Lion (now running 10.7.1).  As far as I can recall, this did not happen under Snow Leopard, but I did not run the machine for that long under Snow Leopard before upgrading.  I have not experienced the freezing issue that other iMac owners have seen, and software update has not recommended the patch for the freezing issue, so I have not installed it.
Judging from the pictures you post, it's likely hardware. If you can swap out the RAM - that might be a nice place to start, but consider taking it in / calling Apple for service. Getting hardware assistance is FREE for the asking. Spend your time backing up your data before you dive in or get service.

Describe the pink tones, the scrambling of parts / horizontal / vertical lines - as well as the icons getting scrubbed.

It's certainly possible to be software - especially since you have three issues:


the pixelation of icon regions on the desktop (VRAM / compositing issues)
pink colors (indicating GPU VRAM / CLUT / shader issues)
vertical and horizontal areas of distortion (LVDS cable / LCD panel / GPU issues)


You'll need to go through an isolation procedure to be sure in your case. As long as it reappears regularly or you can discover what pushes things over the edge, you may have a hard time isolating things so getting professional help is often a good move to save you the time (assuming you actually want to resolve this rather than just learn what's happening)