Okay an update - I managed to solve this issue.
The problem was one of the RAM's - the last thing I was worried about. I had 2 plates, 1GB and 512MB. The second one was toasted somehow and I am not sure how was that possible, might be because of all the power-surges that happens from time to time.
Anyway, removing the fried RAM fixed the issue.
So anyone who experiences this, be sure to test the RAM first - remove one by one and see what happens.