I tried what you said, both deleting the prefs file and completely uninstalling and reinstalling. Neither seemed to have any effect.
Though I probably don't know what I'm doing, I attached 3 screenshot images in the "Additional Options" section of this thread. Please let me know if you can't get them.
Pic1.jpg - Image before liquifying.
Pic2.jpg - Image being liquified. Note that it is upside down. The liquify tool was used in the upper left hand corner and is distorted and shows the wrong portion of the image. We can't see what the image looks like as it's being liquified due to this distortion.
Pic3.jpg - Finished image.