Since you say that an external monitor works fine, there is no problem with your graphics card.
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This narrows it down to either the display or the display data cable. I would recommend changing the cable first, as it costs quite a bit less. Here is a site that sells it: [http://www.macpartsonline.com/922-9132-lvds-cable-21-5-inch-3-06-3-33ghz-imac-late-2009-a1311.html|link]. If that doesn't work, then change the display.
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This narrows it down to either the display or the display data cable. I would recommend changing the cable first, as it costs quite a bit less. Here is a site that sells it: [http://www.macpartsonline.com/922-9132-lvds-cable-21-5-inch-3-06-3-33ghz-imac-late-2009-a1311.html|link]. The picture on your screen actually reminds me of the TiBook G4 displays. The hinges would break, crush the display data cables, and cause the display to show random vertical stripes.
Since you say that an external monitor works fine, there is no problem with your graphics card.
This narrows it down to either the display or the display data cable. I would recommend changing the cable first, as it costs quite a bit less. Here is a site that sells it: [http://www.macpartsonline.com/922-9132-lvds-cable-21-5-inch-3-06-3-33ghz-imac-late-2009-a1311.html|link]. If that doesn't work, then change the display.