The Gnome session displays the exact same behavior.

Odd additional observation: The blinking stops (after a few seconds)
when accessing Ubuntu menu (to log out, restart etc). It doesn't start
again until a key is pressed. Any key. Shift, ctrl, alphanum...
anything.

What blinks: Everything that's not the launcher menu or the background.
If I launch firefox or the calculator, the entire app blinks like mad. I
Perhaps it's easiest to SHOW...

fanleagues.com/files/test.mpeg
or
fanleagues.com/files/test.flv

Same video. Shows blinking (Gnome desktop this time). I access the
Ubuntu menu and blinking stops after a few seconds. I wait a while. Then
press a key and it starts blinking again.

-- 
netbook-launcher desktop menu and icons don't always work
https://bugs.launchpad.net/bugs/531997
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