I've made a backup of my data and formatted and reinstalled 12.10. After
a fresh reinstall the problem seems to be solved. But after going into
the software updater and updating all software the issue is back again.
I've narrowed it down to being one of the Compiz updates that's causing
the issue.

Currently I've updated everything except: compiz, compiz-core, compiz-
gnome, compiz-plugins-default, libcompizconfig0, libdecoration0 and nux-
tools

All of these seemed to have something to do with graphics so leaving
them out solves the issue. Any hope that there might be an update to the
culprit in this list that's causing this issue?

Sorry I couldn't narrow it down more, not the most technical buff.

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Desktop Bugs, which is subscribed to nautilus in Ubuntu.
https://bugs.launchpad.net/bugs/1070175

Title:
  Shutter shows black screen with overlay. Dash icons distorted when
  dragging.

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