Have you got the latest video drivers d/l'd?
I had a similar problem and mentioned it when I saw HT online. He said "Your video drivers need updating"...I, of course, rolled my eyes and thought to myself "Yeah right", but he was 100% correct. The new drivers fixed a bunch of other stuff too...like rough edges on distant mountains and coast lines etc.
ATI drivers can be found here for XP...make sure you follow the installation instructions accurately.
Drivers for ATI with XP