..exactly the same happened to a friend of mine, with the same iMac as well.. Well we brought it to repairs yesterday, but here's what I can tell you:
If you restart another coupl of times, you'll get a blue version, and if you restart lots of times, eventually, you'll get a kind of green/yellow version, and that's the best you will ever get. With this setting, you can se everything and read everything, but still, it won't be good. I'm sorry to say this but this has nothing to do with some settings.. We've tried everything for the past 2 weeks, but (unless someone here has a solution) you're gonna have to go get it fixed. Probably the monitor. btw my friends mac was 2 years old.