I had this same weird "spiky tearing" happen just yesterday on a nvidia 8600gt. I am about ready to move my team (3box) to Northrend so I was checking my video drivers and noticed that my current (fatality) drivers were a few builds behind current. I downloaded and installed the newest drivers and much to my dismay, this spiky tearing effect started as soon as I loaded the second client. I tried a few settings and things but nothing helped untill I found my orginal cd and reinstalled the drivers that came with the card. Now things are back to normal. So in my case at least, it seemed to be a driver issue.

*edit* Now I am wondering what would happen if I deleted that config.wtf file and then installed the newest drivers....hmmmm