First, and most important, the system is back to normal and I have people like you guys to thank. I am not completely sure of what happened but the steps I took were:
1- Erase and restore the iMac's OS starting with the original discs and upgrading to 10.6.6 with no 'extras' added.
2- Installed trial Psd. CS5
3- Installed latest driver, firmware and updater from Epson.
I still have a ton of Epson drivers in the Print & Fax preferences and I had to go through two 7880 drivers before I found the right one.
Thanks again, I am very relieved. I happily spent all of Sunday morning printing and fulfilling orders.