I'm having exactly the same difficulties. So far I have found from here:
That it looks related to the 59Mhz problem.
There is also this: http://us.download.nvidia.com/Window...ease_Notes.pdf
(See Windows 7 Limitations
under page 17)
and Microsoft's KB2006076
Sorry but its not looking too good for a fix to this.
I've got a nvidia Gforce 7900GS and an Asus VW222 monitor running Win7 Home Premium. I'm running the latest nvidia drivers and monitor drivers.
I've tried the suggested fixes of messing with the resolution, running in Windows XP SP3 compatibility, forcing vertical sync off with the nvidia control panel and still getting the same result.
The game used to play fine with XP on the same hardware.
Any suggestions are welcome.