Going fullscreen (which is tricky in itself due to the displacement) fixes the problem, and it plays as it should :)
Personally, I think all games should set the resolution based on the current system resolution (SysInfo.GetScreenHeight etc) or just force fullscreen. A resolution shouldn't be assumed, unless coding for a console, of course :)
Specs:
Windows XP, Geforce 1GB 9800GT AMD 64 X2 6000+, 1024x768 4GB RAM