is it graphic chip fault?

It certainly looks like that. Can you boot into recovery or safe mode? is it the same?

Recovery - CMD and R key on start up

Safe boot - Shift key on start up

£200 for an 8800gs ouch :{
 
Do not buy a 8800GS from ebay they will just be a reflowed card and the problem will come back again. The 8800GS has a known fault and the only way to fix it is to have a new chipset soldered on. There is 1 company on ebay that does do this.
 
Put your current graphics card in the oven for 15 minutes or so. (If you can be doing with dismantling the iMac!)
It's broken anyway, and it might give you a good few months more usage out of it.

I agree with Willis, don't spend that much on an eBay card. You'll only run into the same issue. 8 series mobile GPUs were all an absolute shambles.
 
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