I think you’ve given me enough clues to identify the problem.
Sadly, your dedicated GPU board has failed. The clues that tell me:
* Intel graphics engine is working (Target Disk Mode) you see the Icon on the screen
* You see odd symbols and other artifacts when booting up off the disk
Here’s the replacement part you’ll need: ATI Radeon HD 2600 Pro w/256 MB - Apple P/N 661-4426
You should also get thermal paste and thermal pads to remount GPU board to the heat sink.
Here’s one source: [http://www.powerbookmedic.com/parts/661-4426/Video-Card-ATi-Radeon-HD-2600-Pro-256-MB.html|ATi Radeon HD 2600 Pro 256 MB]