So if I read you right, by having the Windows 7 desktop set normally, you experience no issues? Then why not jut leave it looking as it normally does?
To answer your question, I suspect your drivers are in some way optimised for 'normal' Windows... but if you're really concerned, can you roll back to the graphics drivers you were using previously?
The issue was that this was never a problem in the past and suddenly appeared seemingly out of nowhere.
Moreover, I much prefer the win98 theme over the default one.