My system can boot and play oblivion for a time ranging between 2 minutes to half an hour before it BEEPS 3 times then FLASHES a red light.

I ordered Thermal paste, and going to reapply it soon.
I heard it is overheating, is that correct?
also, the fan never gets faster, it always stays at its lowest setting. I wonder if there is a way to turn the speed up? maybe thinking of installing a fan controller and hooking the fan straight up to a 12V line...

any ideas other than what i wrote?

NO, leave the fan alone. Just reapply the thermal paste AFTER you clean the GPU and CPU throughly. After doing that and it still gives you the three beeps and flashing red light you will need to Reflow them. It worked on mine and I have the cheap 40g built in Sep 07. She might be old but she stilla tickn!