Check Device Manager and see if there is a error with the card? Also go to Nvidia's site and download the latest drivers for your card. The drivers that come on the CD are almost always out of date. It sounds like to me that the system is using the default VGA Windows drivers which do not give any acceleration and that is why you are seeing screen tearing when you move a windows.
Thanks for your response bryonhowley.
There is no error for this device in Device Manager and the only device under display adapters is "Nvidia GeForce 8400GS" (Default vga isn't listed). I am updating the drivers from the site now, but the driver version I already have is only a couple months old. I will update post when the update is done.
Also, I forgot to mention that on Windows start up I am getting an error that the Desktop Window Manager can't start.
I have also lost some features such as WinKey + Tab (which I use a lot), but strangely Alt + Tab still works.
I ran the troubleshooter for Aero, and several others but they all said they couldn't find any problems.
Ok, I updated from driver version 331.65 to 332.21 and restarted my computer. Unfortunately, it didn't seem to resolve the issue.