I am sorry you are having problems with the system but let me help you.
Based on your description I want you to try the following steps:
- Try a different HDMI cable (better Quality if possible).
- Is there any way to test another processor with similar graphics controller in your computer?
- What happens when you do not connect the computer to the TV? Is the image good?
You also can try installing the latest driver for your controller. Here you can download the driver:
1. I'm not using a HDMI cable, I have connected the system only to monitor not TV
2. I think the problem is with (Intel DH77EB) motherboard graphics, since i only face that problem when i install the driver for motherboard graphics(Intel HD 4000).
3. I'm not connecting it to the TV. Just the monitor.
Right now, i have installed the graphics driver but have it disabled. If i enable it and restart, it wont allow me to proceed beyond windows 7 logo, after which the display is filled with color lines and nothing works. Even the keyboard and mouse power down.
The intel driver update utility tool says i already have the latest version of the graphics driver, so i didn't try the driver you mentioned
Product Detected Intel® HD Graphics 4000 Current Driver Installed
Is there anyway to resolve the issue, because the system is pretty new and i don't want to claim warranty and get a reconditioned board
This not necessarily can be the motherboard but the processor. If you are not using HDMI, you may be using DVI so let’s try a different DVI cable. Most of the times, when having blurry colors and weird image the cable can be affecting the performance.
Also a good step is to test a different processor (if possible). The motherboard could be working fine but the processor can be affected (not very common but it is a possibility).