Vostro 230 freezes on boot

I have this Vostro 230 here which refuses to boot.

It completes POST with no problem.

It generally gets stock on WinXP log.

The PS2 keyboard and PS2 mouse do not work.

The only way to start over is pressing the power button

Sometimes, (every few try) it goes thru WinXP logo, then it stops, and the screen will just fade (gets really dark).

I tried booting to the bootable CD disk (WinXP install, Avira Rescue, others) with SAME results.

Disconnecting hard drive and CD/DVD did not change anything.

I am pretty sure it is NOT a hardrive issue.

However, I CAN boot it with Dell 32bit diagnostics (from CD).

I performed ALL possible tests for many hours.

Machine passes all tests.

Also, I can boot to the DOS image from USB Floppy Drive, or USB drive.

I even managed with BIOS upgrade from 1.0.0 (original) to latest 1.4.0 for this machine.

BIOS upgrade performed from bootable USB DOS image.

Any ideas greatly appreciated!

Thanks

Mirek