Our imac 266 won't start. It comes up with an error message saying "Illegal instruction" and it says to reboot holding the shift key, when rebooted extensions are turned off but then it says "error type 10".
Seems as though you are running the Classic Mac OS. If you could please include the version of the Mac OS you are using next time it would be of great help.
To me it sounds as though you are having a RAM problem. Have you tried swapping out the RAM modules with ones that you know work? If you only have one in there, you might need to get another module that works in place of it.
Anyways, before you try that you might want to try and zap the PRAM. I don't know if this will fix it, but you can still try it. Hold down Apple-Option-P-R right after you hear the startup chime when you turn the Mac on. Keep holding it down until you hear 4-5 subsequent chimes and then let go. As the OS loads the extensions and control panels, hold down Apple-Option. You'll get a message about rebuilding the desktop; say yes to this. Once it finishes that, you'll be left at the desktop. See if you can launch Disk First Aid located in Applications-->Utilities and have it repair the drive.
This still sounds like a memory problem to me, but it doesn't hurt to try the above step if it lets you.