I had this issue as well. Here is what I did to resolve it:
ssh to your core and become root
identify your media director number - ls -l /usr/pluto/diskless
ssh moonXX - subbing the X's with number of MD
sudo apt-get update
apt-get install nvidia-current
This will update your nvidia driver to 290, which is what is most current. After this completes it will have unloaded the 260 driver and built the new dkms modules for 290.
When it has completed you will need to reboot the Media Director. However, before you do so, you must prevent LinuxMCE from re-installing the 260 driver.
Do this by editing the file nvidia-install.sh
So while still in the Media Director:
right below the #!/bin/bash line add - exit 1
keystrokes for those who do not speak vi:
o (the letter O)
:wq! - shift+colon wq shift+1
Now you should reboot. Upon reboot, you should be good to go. I tested this last night and after playing MythTV for several hours, there was not an artifact to be seen.
I am running MythTV with VDPAU Normal setting on a Zotac ION Media Director - GeForce 9400M built in over HDMI. Using HDMI audio as well.