It is definitely moisture - no doubt about it.
Thats quite a lot of questions! There is not doubt in my mind this was caused by a change in weather conditions. It has been fairly humid here - i had the aircon on in the room. The imac was fine when it was in sleep mode - as soon as turned it on and it started heating up and just started fogging - I put it back into sleep mode just so I could photograph it.
The conditions are nothing abnormal - I knew these questions would come up - the room is comfortable for me so it should be fine for the imac. Now if all my lcds and tv's where fogging up I can see the problem - but this should not happen. I have just lost confidence in the machine.
It is the installation more than the iMac itself.
If I were you, I would lose confidence in that room and not the computer.
The iMac has shown you a symptom of a problem.
The iMac has a glass panel in front of the LCD panel, I can see it occurring with changes in humidity/temperature. It will show this before anything else in the room will.
We made our computer room sort of climate controlled to avoid just this.
We have 4 systems and 2 TV's in the room. We used to shut everything down at night and fire it all up in the moring. ( in an effort to say pennies on the electric bill ) We saw moisture such as this on some of the equipment and found placement was an issue.
Once we insured the room was at a steady temp, this all went away.
Like I said, it's you installation/location more so than it is the iMac itself.
I have a desktop Windows PC here, it will do the same thing inside the computer itself if you look for it. Of course the iMac is in front of you and you cannot help but to see it.
Consider this, if it is happening on the iMac it is probably happening in other devices in the same room. You just can't see it, but over time you may well experience the effects of it.
Think of it like this.
If you put a thermometer in your mouth and it shows you have a high fever, do you blame the thermometer?
The iMac has shown you have a moisture/temp problem, fix the problem and the iMac wont show it to you anymore. Get rid of the iMac and the problem is STILL THERE.
Bottom Line: the issue is with your room/climate, not the iMac.