TB,  As far as something to try, I had something similar happen and it was just that my driver had mysteriously become corrupted.  I deleted it and found a new driver and it fixed the problem.  I too had the display background as in your case but I also couldn't change my resolution to anything better than 800 x 600.  I recently got a new machine with the NVIDIA GTX 580 in it and WOW!, I didn't even know AH terrain and water looked like it does now.  Good luck on the card but you might check the driver.  
one-eye