Ok I will take a stab at this one.
I also had this same problem tho I don't remember what I did to fix it (it was long ago-months), but I did fix it. Best I can remember it was to do with the resolution-refresh rate< pretty sure this setting was wrong on my setup. So check refresh rate.
So I would check theses settings first to see if they are correct.
Next thing to try would be windows aero I seem to remember trying this also. Turn on/off test. I'm am almost positive this was the problem, but check your refresh rate also.
Like I said it was a while ago for me.
But I have moved on from VLC/Divx players and I now use ZOOM PLAYER.http://www.inmatrix.com/files/zoomplayer_download.shtml
It is not integrated in the IQS script, but I download everything then watch. It will however stream from a direct link so there is a way. But I'm not going to get into that for now. I may take the time later to do a tutorial on how to later when I have time.
I hope you get it sorted out. I can't stand the dreaded screen tearing, and I will keep an eye on this post. Please post back if and when you get it fixed so others will know what worked for you.I bet it is windows aero causing it