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Problems like that have been reported several times on several different threads. The most common belief is that it is either a broken glass substrate (need new screen) from dropping it or otherwise playing rough.
The second is believed to be an issue with the batery and the charging systems inside. This was what I had happen to my 505. If the batery gets depleted to the point where it is deader-than-dead, you have to use the PSP/Wall charger to put the juice back into it. Sometimes this results in the gray lines of death.
My solution was to call Sony support and hope it is under the MFR warranty still. If you bought it within the past year, Sony may be able to help you out. Make sure you get a hold of the Laredo Texas Customer Service branch for final service. They handled my warranty claim without a hitch. It cost me roughly $31USD for overnight shipping to Tx and back to Fl.
If this is the problem, make sure you tell them it is from the battery issue I explained above.
Hopefully they will be able to help you out. If you want, I can try to track down the name of the CSR I spoke to in tech support.
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