Alright here's the details. my GPU is a 4-year old XFX GeForce GTS 250 which only runs 3 graphically intensive apps - STO, second life and recently skyrim. In the past, it had the tendency to black out the screen for a few seconds before recovering and windows will report that "Nvidia Windows Mode Kernel Driver has stopped and has successfully recovered". This only happened once every few months so I didn't really bother with it. After I installed skyrim, the black outs became more much common, to the point now where it will black out a minute or two after launching skyrim. Now, it has even blacked out even when I am not playing any games.
I thought it was a overheating issue so I started carefully monitoring the GPU temperature. The GPU has been consistently staying at 67 degrees celsius at idle and tops out at 85 degrees when playing STO. In contrast, my cpu can get up to 99 degrees running at full load (I also use my computer for a lot of compute-intensive math/large matrix operations and stuff). The gpu fan does not go beyond 65% speed so overheating doesn't seem to be the problem.
Yesterday, I upgraded from old 2011 drivers to the latest Nvidia drivers (320.something) and the same blacking out is still happening. So right now, I don't know what to think or what the real issue is.