Try eliminating the video driver as the problem. Boot the system into safe mode and then try again...
The desktop and icons will be very large and the colors won't be spectacular, but if it works then you know the video driver is the problem when running in normal mode.
If safe mode works, then to try to fix it in normal mode by using different desktop resolutions and color depth combinations. Also if your running WIndows 9x, right click My Computer and select properties. Click the performace tab and click the graphics button. Slide the acceleration tab down one setting at a time to see if that fixes it (you'll have to reboot inbetween each try)