MacBook Pro :: Late 2007 15" Kernel Panics - Screen Flickering

Late 2007 MBP 15" kernel panics upon boot up and requires two /sbin/fsck -fy filesystem checks in single user mode/safe mode in order to get it to boot. Once you are at the login screen, it hangs after a bit/login and the screen starts flickering fast and visibly. There is also a faint visible "blotch/ink blot" like transparent area on the screen when it flickers (just to let you know, the screen looks FINE, no black blots (common for broken LCDs) and there does not appear to be any physical damage.

Anybody know what the heck might be going on? So far, I can already tell you that I DON'T KNOW if the machine was dropped or what the user did do to it (I'm only fixing it).

Also, during the fsck, I commonly get this: "Incorrect block count for pcscd.pub" it should be 16 (or 17) which gets me scratching my noggin (googled it, not much that I was able to do to fix the machine though). Fsck fixes that, but upon the next reboot after the kernel panic, I get it again in fsck.

We called the machine but of course when it was not bought the AppleCare was not registered (even though we bought it for the user) so right now we're waiting for Apple to register it (had to fax the receipts/POs) which usually in my experience only took few minutes to complete before we can even take it to the store.

My questions are:

1.) What is going on.

2.) Hardware problem? Bad Logic Board/GPU? Hard drive going bad?

3.) Software issue? Reinstall OS X?