I have been a PC technician for years and have never seen a problem like this. Anyone who can explain this problem will receive forty virgins via USPS.  
 
I installed a FireMV 2400 PCIx1 card on a perfectly functional system. Everything was going fine with the install. Windows XP pro booted up normally with the card installed and detected the device. I installed the drivers and reboot the system. After the reboot, I got the image that you see in the attached picture. As you can see, the wallpaper is fine but the actual Windows icons are all distorted at the top of the screen. Windows does not crash. If I remote into the system, everything appears to be fine. I have absolutely no explanation for this problem. Why isn't the wallpaper distorted but everything else is? Why does the system appear to be fine when connected remotely?  
 
Just so you know, I am an experienced technician and have tried all of the basic steps already. I have changed cables and monitors. I have not changed the graphics card, although that is what I will do next. However, I am very curious to see if anyone has an explanation as to what could be causing this problem.
 

-0
secret UFO rays.

If your answer can be proven to be correct, then I will send you forty virgins via USPS.

The system appears to be fine when connected remotely because you are using your machine to view the display...
(Last week I had a laptop with a broken display, when I remote to the laptop sitting right beside me I can view the desktop fine.)
 
I would take a guess that you have a driver issue on that machine… or perhaps a hardware issue with the card. Can you install the card into another machine? Or install a different GPU into the machine in question…

LOL.
 
You need to isolate the problem, the next step as you correctly said, is testing the system with another video card.
Btw report the system specs.

JHDave you could try Tweakui.and do a repair on it.hope this helps you.

Another graphics card works fine with this system. However, I really want to figure out what this problem is because I've never seen anything like it.

Well, I don't know what caused your problem, but the symptoms are exactly like what I experienced when I overclocked my card beyond its capabilites with increased voltage through bios: The windows booted fine and the background picture was ok, but the icons and specially the text below each icon was totally messed up. I have dual boot (xp and vista) and the problem persisted in vista as well, so it wasn't driver-related. I would say it's most likely your card. It's a faulty one.  
By any chance, do you see a few random colorful pixels here or there? If yes, it's definitely your card.

Check the refresh rates in the graphics driver. Most lcd's run at 60hz refresh. That might be your problem.