Well, I have already replaced the video card with a new ATI Radeon 9250 128MB card, updated to the latest ATI driver, and did the following as adviced by Microsoft Support website:
WORKAROUND
To work around this issue, follow these steps:
1. Click Start, click Control Panel, and then double-click Display.
2. On the Settings tab, click Advanced, and then click the Troubleshoot tab.
3. Move the Hardware Acceleration slider to None, and then click to clear the Enable Write Combining check box.
4. Click OK, and then click OK.
However, the WIN32K.SYS error still on-going. I have no idea how to proceed further, is it hardware failure, ram, motherboard, hard drives or what? should I just call the Microsoft Support Centre by phone for assistance?