ATI 4850 flashing/flicker on SD content in VMC

I have 2 4850's (2 different versions) in 2 different machines at 2 different display devices, with the same issue:

When I try to watch an SD show (either recorded or Live), it flashes the first frame of the video intermixed with the ongoing frames. If I move the mouse, the flashing goes away, but when I stop moving it, the flashing comes back with a more recent frame. I hope this is making sense... I tried searching but didnt find anything related to flash/flicker that made sense. I did try turning off aero and I tried various resolutions, and changed the VA in catalyst, with no impact.

The video plays fine in WMP. HD plays fine in VMC. In both setups, I am feeding the TV with HDMI. In one case, it is direct to the TV, in the other, it is through a Denon receiver. TIA.

Not having this problem when I switch one of them with an ATI HD 3870, using the same 9.6 driver and DVI to HDMI.

Could this be a codec issue that affects only 4850/VMC? I have a Nvidia dual tuner in one of the PCs, that I guess is using pure video codec. Otherwise, I haven't made any codec changes. Is there a way to change the default VMC player to one that doesnt have the issue? Would it be helpful if I linked to a video of what the problem looks like?