Generally it is high temperatures that cause instability, then instability causes artifacts - generally speaking if the artifacts are lines it is memory, dots are GPU core.
Yes it is from the heat...I only know this cause I was OC'ing my Radeon9800 Pro last night to help out Doom3 some..and went I hit that peak level it was displaying all that fragment crap..I dropped the settings down a tad and they went away which I was happy with.
I would imaging if you get a nice VGA cooler you could OC it more assuming your actual case is cool enough at current state.
It might not be heat, but a lack of power - if you increase your AGP voltage you might get better results, but that most definitely will increase the temperature, and you will need better cooling.