There's about a 10% chance that a reset will clear this issue. You can try it out using the instructions below.
In shooting mode hit Menu and then select Reset and select Yes.
If the reset does not solve the issue then, unfortunately, the symptoms indicate that there is a problem with the ccd (the light sensitive chip that produces the image)or the connection to it. It could have been caused by a hard impact. Olympus repair is really the only option and while your camera was not on the list of any cameras on the free repair program, the information at the link below does explain this progressive problem and tells how other camera makers handled it. You are now the 8th person in a three month period, with a digital camera that I have advised of this problem.
Note: As far as the camera itself is concerned, considering the age and present value of this camera, paying the cost of having a repair of this type , approximately $95 (if the parts can be found) really depends on how attached to the camera you are, but is not very cost effective. The standard "rule of thumb" is if the repair cost is greater than 50% of the value of the camera, it is not worth it. Keep in mind that a brand new FE-320 can be purchased on auction sites for about $60 (open box old stock) and good used ones for under $35.
Please keep in mind that my diagnosis & solutions provided are directly dependent on the accuracy of your description of the problem. As with any "do it yourself" fixes, success is a "team effort", since I can't see or touch the camera, and relies on the customer's manual dexterity and ability to follow the instructions well. If the "do it yourself" approach doesn't work out for you and you need conventional repair, please let me know.
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