I have seen this once on my own cabinet when I first installed an ArcadeVGA card. It is a very strange problem. Presumably this is the older Radeon 7000 based card?
I no longer get the problem on my cabinet, it generally seems to go away if you change to 800 X 600 and then re-boot and it seems to be permanently gone. I am not really sure what the cause is, something buried deep in either the ATI chip or driver core.
Andy