Well, after hours, days, weeks of testing and browsing around the web, - the time has come to start here a MXM related thread...

What's the exact matter? The original matter is the enormous error rate of Apple's early MXM (1Gen) based
Geforce 7300 / 7600 cards. The repair (replacement) of such a card is around $600 to $700, - naturally without "lifetime warranty".

The possibility of the same fault after two or three years is more then likely...

What are the alternatives, respectively are there any alternatives? Sure, you can buy for $249 an original Apple Geforce 7300 MXM card and DO IT YOURSELF. This will spent you some money.
But, - as mentioned, the possibility of a repeat of the error after some years seems to be very likely.Well, are there any additional alternatives? Why not use an MXM (1Gen) Radeon HD card out of the (before 2009) ALU iMac line? Yes, sounds good, but WRONG, I tested this in-depth with the result INCOMPATIBLE. The electrical / physical parameters are perfect matching, but the way how the MXM EFI is communicating seems to be different. I read somewhere that the white iMac MXM (1Gen) modules are talking to the logicboard according EFI 1.10 specification, while the 2007/2008 ALU iMac MXM (1Gen) modules are talking according EFI 2.xx, ALTHOUGH they only have EFI 1.10 level!
Note, the well discussed 32bit / 64bit EFI subject seems to be here negligible, - every MXM (1Gen) based iMac (2006/2007/2008) has 32bit EFI 1.10. It is confirmed for MXM (1Gen), iMac 2006 are 32bit EFI based and uses UGA video protocol. iMac 2007 & 2008 are 64bit EFI based and use GOP video protocol.
First question, is there a way to change the form of "EFI communication", so that I can use an ALU iMac MXM (1Gen) card?
Second question, how looks it with "cross flashing" of standard PC MXM cards? That seems to work quite well in the matter of (standard PC) PCI-E graphics cards. It should be also possible for MXM cards, - however the aspect of hacking the ROM needs well funded skills which I don't have…
Update 2012:It seems that the original iMac MXM Geforce 7300 cards have
not the same "overheating design flaw" like the iMac MXM Geforce 7600 series. As several informations trough the web indicate, - the problem is here the
debased original thermal conductance paste. Apple seems to have saved money at the wrong place.

However, when the card is still alive, it can be saved with high quality thermal conductance paste! I can confirm this for several Geforce 7300 based 24" iMac computer which works with new thermal conductance paste again absolutely error free.
To be clear, that solution does
not work for Geforce 7600 based iMacs. It seems that the Nvidia GPU has a to high overall TDP (Thermal Design Power) which cannot be cooled down in these 24" iMac systems. The Geforce 7600 card must be
replaced with a Geforce 7300 one. A very similar problem has the first iMac ALU generation (2007 - 2008). Here it is recommended to replace the high end model Geforce 8800 GS with an Radeon HD 2600 one.
Update 2013:Unfortunately, it looks like it hasn’t changed a lot here since my last post.

There seems to be no simple way in this matter.
However, the situation has somewhat worsened. It seems that the Geforce 8800GS MXM cards installed in formerly “high end” 24” ALU iMac line from 2007 to 2008 are also affected from a grave (thermal?) design flaw. They are dying recently in epidemic proportions. I had two affected iMacs the last six months; - ebay and other auction platforms are full of them. Only current solution is to buy one of these *damn* expensive Apple Radeon HD 2600 or Radeon HD 2400 MXM cards. Note, - a matching (Radeon HD) GPU heatsink (for 24” iMac) may also be needed!
Well, well, I'm start to suspect - that all these GPU related iMac "design flaws" are not just simple coincidences. I am beginning to believe that all these failures are part of a clandestine strategy from Apple. Yes, I agree, that sounds definitively somewhat paranoid….
Finally something positive; an exception may be the Radeon 6970M MXM (2Gen) cards which also seems to have increased error rates. Build are these into the 27” ALU (Unibody) iMac from 2011 to 2012. Unbelievable, - Apple has started in this case a replacement program!
http://support.apple.com/kb/TS5167?viewlocale=en_US Haste is necessary, - the program ends in May 2014.