I do not recommend fixing a video card with a butane lighter. You cannot control the temperature on the chip and it's just generally not a good idea to mix lighters with electronics. If the chip has become dislodged from the board (you cannot see it) please use a heat gun. You can pick up a Wagner one for $20 at Home Depot that will do the job.
I assume that the BGA mounting did it's favourite thing and unsoldier itself to the board. If so, then you'd set the heat gun on low and warm the whole board for 30 seconds and then set it to high move the heat gun in circles around the video chipset about 3 inches away from it.
I don't really recommend that even though it's a very cheap fix. BGA failure will happen again if it's happened once. Whether it happens in a day, a month, a year, or two years. It will happen again. That's why so many Red Ring of Death "fixed" Xbox 360s end up RRoDing again.
If you are super worried about taking the computer to a shop, hook up your iMac to one of your other Macs via FireWire (If I recall correctly, you have a MacBook Pro and a Mac Pro) and back up your hard drive via Carbon Copy Cloner. Then, load up Disk Utility on your working Mac, click on your iMac's hard drive, go to "Erase" and in "Security Options" slide the slider all the way over to the right. No data survives a 7-pass 0-rewrite. If you are paranoid, do it twice. Depending on the size of the hard drive, it will take anywhere from an hour to eight hours.
If you
Here is an IFixIt guide to get to the video card:
https://www.ifixit.com/Guide/iMac+Intel+24-Inch+EMC+2267+Graphics+Card+Replacement/13765
Depending on the options you selected when purchasing your iMac, you have one of the two cards:
http://www.macpalace.com/661-4664-v....8-3.06ghz-imac-early-2008-a1225-mb325ll.html
or
http://www.allpartsmac.com/631-0595...aVLWcBOOK8OFPwF_ghupQbOHUQhqHnnv3yhoCpPbw_wcB
If you had the Radeon 2600, I'd recommend upgrading to the GeForce 8800GS. I'm pretty sure the cards are both compatible in your iMac as they used the same motherboard for either card. You would be upgrading from a 256mb card to a 512mb card and if the ATI one gave you problems, then I can only assume that it will give you problems again.
This seems like an easier but more expensive fix than what I had to do on my 2006 Core 2 Duo iMac. All I had to do was replace all the capacitors near the video chipset. I have replaced the video card on a 2008 iMac, and it was definitely not fun. I nearly broke the glass piece on the screen and definitely cussed like a sailor.