I believe what you are seeing what is called video tearing or page tearing. The problem occurs when your video card attempts to send a new frame before the previous frame has been drawn completely. To correct the problem you need to enable v-sync. If you have an nvidia card then you can run nvidia-settings and check all of the boxes that reference "sync to vblank". With these checked your video card will wait until it sees the vertical blanking signal before tries to write the new frame. ATI cards should have a similar option. This eliminates the tearing but it can introduce other problems.
With 1.1 I was having difficulty using "sync to vblank" with composite enabled in the xorg.conf file. See this thread:http://forum.linuxmce.org/index.php?topic=1730.0
I'm pretty sure that composite is only a problem if you enable "sync to vblank". The downside to disabling composite is that you can't run UI2 with alpha blending. You are limited to UI2. I'd be curious to hear if anyone is using UI2 wApha and "sync to vblank" enabled. I haven't tried enabling composite with RC1 or 704 so I'm not sure if it's still a problem.