Stark's design of the reactor in his chest required a heavy element such as palladium to keep it running. Unfortunately, palladium was continuously eroded by the neutron bombardment, and released deadly poisions into Tony's bloodstream. As he came to understand that his demise was at hand, he began giving his possessions away, including apointing Pepper CEO of Stark Industries, and allowing Rhodey to 'steal' the Mark 2 Iron Man suit and take it back to the US Military.
It wasn't until SHIELD's intervention that Tony's poisoning symptoms were temporarily reverted and he was set on the trail to find his father's design for a new element to replace the Palladium. Building a small particle accelerator in his garage, Tony was finally able to create a new element that met his needs, and in turn created a brand new suit to utilize the new power.