Thanks for the help guys. I seem to be the only one with this issue.
I've uploaded a screenshot.
Hardware is E8400 CPU running stock, 8 GB RAM, Powercolor 5870 1GB, Motherboard Asus P5K-E with latest BIOS. 700W power supply.
OS is Windows 7 64 bit (have tried on XP but same issue).
I have tried the following without success:
re-installed Catalyst drivers. re-installed Flaming cliffs.
Tried running Oroginal Lomac, flaming cliffs 1.1 and 2 and black shark - issue is on all of them.
Tried on Windows 7 and Windows XP. Issue on both.
Reinstalled Catalyst drivers.
Played around with the Catalyst 3d settings. Nothing seems to make any difference.
Reseated the card.