So I have this problem, with my iMac G3.

I consider myself relatively good at troubleshooting macs, but this happened the other day and it is really quite irksome. I have a iMac DV 500 that had been running Mac OS 9.1 for many years, but last week I decided to install a copy of Mac OS 10.3 on it.
In install went flawlessly, but immediately upon restart I began noticing bad signs.
The first thing I noticed was that the screen image had an orange/red tint to it, i.e. the normally blue start up screen was an unpleasant bright purple.
When the desktop appeared, the screen image displayed on the LCD itself was heavily distorted, with an intense ripple effect causing the sides of the screen to irregularly bubble inwards and outwards.
The text became blurry as well, and had streaks extending out to the right of colors on the screen.
In other words, the screen projected on the display was a complete mess. I tried to correct the problems via the display control panel, but it was unable to make much of any improvement.

At this point, I decided to change the start up disc to Mac OS 9 to see if the problem extended to a different system folder. Unfortunately, I never got to see the result of this, because instead of starting up normally, it simply gave me a blank, black screen upon start up. Many forced restarts later, I gave up for the day.

The next day, I tried to turn it on, and lo and behold, it booted up in Mac OS 9.1... with the same problem as in 10.3. I took action by uninstalling 10.3, but the problem remained. I then did a "dirty" reinstall of Mac OS 9 to hopefully clear any potential software problems, but it didn't do anything.

So, tomorrow afternoon I am planning on doing a complete clean install of Mac OS 9.1, as well as installing the latest firmware update. However, at this point I am convinced that this might be a problem with the hardware itself. The only thing that leaves me to believe otherwise is because it happened immediately after I installed Max OS 10.3. That would be a really odd coincidence.

Anyways, the Apple support site doesn't seem to be much of any help, so I'm hoping one of you forumites knows what to do in a situation like this. If not, thanks for reading anyways.

Sounds like the infamous firmware bug; try this link: http://www.capecodgraphics.com/imac_firmware.htm.

That fixed it. Thanks!

Glad it worked for you. Apple really handled this issue poorly; not warning people in a timely manner and then doing nothing to help. But unfortunately it's not the only time Apple has done this.