iMac 24" with washed out colours - Help!

My iMac 24" Aluminium (June 2008) running 10.5.8 has behaved impeccably for almost two years. I use it for graphics and photographic work, so colour fidelity is very important.

A few days ago, in the morning, the machine was still "perfect". By lunchtime I realised something was not right. The Photoshop file I had been working on looked different. I could not see details in highlights, transparency in layers that was clearly there in the morning had suddenly vanished. Looking closer at the whole screen I realised the whole environment was washed out - not just in Photoshop files.

I tried:
Calibrating the monitor - no difference.
ColorSync Utility: Verify/repair - reported loads of errors but fixed nothing.
Took the mac to authorised Apple repair shop in Hove (UK). Spent time with the engineers trying to sort it out. They had not experienced this before.
We connected 2nd monitor. Strangest thing: The same moment the 2nd monitor was connected, the native screen instantly looked fine. Both monitors fine.
Disconnecting 2nd monitor, and the native screen went bad again.
Booted up the iMac with their external drive and system (sorry, not sure which system but probably the same 10.5.8). The screen looked fine, even without a 2nd monitor. Rebooting with native OS and the screen went bad again.
Conclusion: Corrupt file in the system somewhere. Advice: Reinstall system (archive/install).

I did this today. Screen is the same bad screen, so reinstalling 10.5.2 and upgrading to 10.5.8 did NOT solve the problem. Erase and install is my VERY LAST resort. I really don't want to start from scratch with new system, new installation of applications, updates, settings etc.
I would rather buy a small 2nd monitor, watch the screen look good again, having another screen to use and PRETEND I DON'T HAVE A PROBLEM!

Questions:
Has anyone any idea what this can be?
Is it possible that upgrading to Snow-Leopard can solve the problem (but that is also just an upgrade and not a clean start?)

I enclose a screen-shot section of the desktop showing that the finder window has no contrast in highlights (blue and white horizontal stripes are only visible when another window's drop shadow multiplies with the background. Also, the green stripe has banding in the lighter part instead of being smooth). At least, that is what it looks like here!

Thanks for any help!

Thanks for the tip, Marvin. Just tried it (the file is still in trash, not emptied) but it didn't solve the problem. Should I put the file back in the library?

It has been tried several times (also together with Apple repair people) with no fundamental change. Tried it again now but same old story. I did a calibration as well when I discovered the fault but the new profile didn't solve anything.

Thanks for suggesting - keep them coming!

Thanks SpotOn. You touch onto a few things that sounds scary to a lay-person as I am.

Just to confirm: The Apple engineer booted my iMac from their own drive with their OS (10.5.8??) and the screen looked fine. As soon as it was booted from my own internal OS it was bad again.

Also, with the mac booted from my own OS (normal startup) and screen being faulty, as soon as a 2nd monitor was attached both screens went fine. As soon as 2nd monitor was detached, screen went bad again. Their conclusion was therefore an OS failure somewhere. Graphics and converter cards were obviously able to drive the both monitors correctly at some stage.

In terms of corrupt Prefs files, I had a look at what had changed. I found two files that were updated about the same time as the fault occurred (java and Safari). I moved them to trash and rebooted but it was a wild goose chase.

Any good trying DiskWarrior or similar? Haven't got any of those utilities but could buy one.

Thanks again. I just tried that - AND IT WORKED! Logging in as a different user (new account) and a perfect screen pops up.

That was the simple part. What next? Is it likely to be a pref file in my user Library, or something else?
Is it a needle in the haystack job from now on?

GENIUS!! It was that simple!! I must have accidentally held Ctrl-Opt-Cmd and pressed full stop a few times during work. Now reversing it by pressing comma instead. This is a command I did not know existed.

And just to be clear, this has nothing to do with brightness slider in System Preferences -> Brightness. This stays the same regardless. I don't know if there is a manual contrast slider anywhere, there isn't one in System Prefs > Display.

Thanks for your help guys - much appreciated! I'll buy you a beer if you're ever around here!

PS: Is there a comprehensive list of Apple OS key commands and short-cuts in the public domain somewhere? In other words, could I have solved this by just looking on such a list?

Just to sign this one off I post the reply from the Apple repair man when I told him:

"Hadn't thought of that one...

Just so you know that is accessed in

System Preferences/Universal Access/Display

Should be set on normal....

Should have dawned on me... but your display was not toooo bad... is
commonly done by students to each others machines... as at the extreme
it looks as if you have a serious display problem... Check it out!!!

Didn't realise that there was a keyboard shortcut for it though...

Anyway, glad it is resolved...

And thanks for letting us know.... not sure why connecting an external
display overrides those settings... but interesting!!!!"