Sure sounds like it could be a driver problem. You're talking about using the latest drivers directly from NVidia, right? I've seen the Microsoft ones do some funky things on NVidia cards here @ the office. If that doesn't work, try an earlier version of the NVidia drivers.

If it still gets garbled with all versions of the drivers installed, then there's most likely something wrong with your video card--the hardware that controls some advanced feature or other is malfunctioning. Swap it out for one you or a buddy has laying around and see if you have any better luck.