Sounds like your GPU (Graphics Card) is on the way out! I have seen this many many times, where coloured lines appear on the screen. Try updating or rolling back your GPU drivers.
If I am write in thinking, that laptop originally came with Windows XP installed? You may find Windows 7 is not 100% compatible with your laptop. Try this: http://www.microsoft.com/en-us/download/details.aspx?id=20