Here's a question. Has the L2 cache died on the processor card?

See if you can get a utility that allows you to test it. It may be that the Cache died.

Also, when bootin, hold down the "V" key after you hear the chime. That will make OS X boot into Verbose mode and you can see what's going on behind the scenes as it boots. It may give you some hints as to what is going on.