My wife is having major problems with her laptop.  She has a Dell Inspiron 8200 running XP Pro SP2, Pentium 4 2 GHz with 512 MB of RAM.

Last week, when she started her computer, the bios looked a bit odd, as did the Windows loading screen.  (see attached picture) with alternating thick verticle bars.

Once Windows loads, one of two things happens:
Windows loads like normal, yet the screen becomes more and more hazey as time goes by with a rainbow haze.  The computer maintains normal usage.  The rainbow haze also follows rapidly moving objects, such as the mouse curser or dragged windows.
A white washed out screen with verticle bars slowly transitions into a black or blue screen.  When this happens, Windows will not load completely or be accessible ctrl+alt+delete is not accessible either.

There are no problems when I start the computer in safe mode.  It acts perfectly normal.

I have TRIED scanning for a virus and spyware, using Norton Anti-Virus, Spyboy Search and Destroy and AdAware.  I have also tried replacing the RAM.  Finally, I tried restoring the computer using System RESTORE.  None of these worked.

There is a possiblity that this all started after our dogs knocked a small class of water near the laptop.  As far as we could tell the water briefly touched the external case of the computer, but I won't rule out water damage.

My thoughts are water damage, spontanious bad driver(s) or a really invasive virus.Initial computer startup (bios) loading prior to Windows loading screen.White screen with verticle bars and other small objects of VARIOUS shape when Windows loads in a transitional colored holding paddern.Another portion of the transitional colors.Don't punish the dog!
In this type of Dell, there is a major problem with the video card....(and its not recalled, what a shame, Dell)
The video card is easy to break by opening and closing the screen.....(I thought laptops were supposed to be somewhat sturdy for this task!)
You may need to replace the motherboard, but FIRST, make sure this is the right answer. (as you never know if there's more to the story!)

Is this still under warranty, by any chance?It looked mechanical, rather than software related. Water near a computer?  
You can try reinstalling the video drivers, or do a system restore to before this happened, but it may well be time to go in for repairs.Thank you for the good comments.

If it is a hardware issue, why would the computer run perfectly in safe mode?
Obviously, if the video problem begins in the bios before windows loads, it likely is a hardware issue.  When I load the bios setup screen, the issue doesn't appear to be there.

However, if it is a hardware issue, why would Windows load perfectly in safe mode but often won't load in normal mode?  It's strange!

Keep the thoughts coming, please!I am sorry, what I meant to say was this:
This is a problem in a certain type of Gateway model.

I got gateway and dell confused. You say it runs great in SafeMode?
As in no problems at all?
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Thank you for the good comments.

If it is a hardware issue, why would the computer run perfectly in safe mode?
Obviously, if the video problem begins in the bios before windows loads, it likely is a hardware issue.  When I load the bios setup screen, the issue doesn't appear to be there.

However, if it is a hardware issue, why would Windows load perfectly in safe mode but often won't load in normal mode?  It's strange!