First step I'd remove and replace your vid-card drivers. They may have been corrupted.
If that doesn't work I'd say you've possibly got a stress fracture in your timing circuit or one of the data tracks. (end result is intermittent and random graphics glitches as the on-card data goes wonky)
If you can, borrow a card from another machine and see if that fixes it. If it does then buy a new card, if it doesn't then there is a good chance the problem is with the motherboard.
Also you'll see in the "display devices" section of your DXDIAG you posted:
--------------- Display Devices --------------- Card name: RADEON 9800 SERIES Manufacturer: ATI Technologies Inc. Chip type: RADEON 9800 PRO AGP (0x4E4 DAC type: Internal DAC(400MHz) Device Key: Enum\PCI\VEN_1002&DEV_4E48&SUBSYS_30021002&REV_00 Display Memory: 128.0 MB Current Mode: 1024 x 768 (32 bit) (75Hz) ...
DeinterlaceTech_PixelAdaptive {335AA36E-7884-43A4-9C91-7F87FAF3E37E}: Format(In/Out)=(NV12,0x3231564e) Frames(Prev/Fwd/Back)=(0,0,0) Caps=VideoProcess_YUV2RGB VideoProcess_StretchX VideoProcess_StretchY DeinterlaceTech_BOBVerticalStretch Registry: OK DDraw Status: Enabled D3D Status: Enabled AGP Status: Enabled DDraw Test Result: Not run D3D7 Test Result: Not run D3D8 Test Result: Not run D3D9 Test Result: Not run
See the red lines? Open the display tab in your DXDIAG and run the tests then re-post that section.