Blue blinking screen

Greetings,

When I try to load the game, I get this strange problem when my screen flashes every second, so I can't really play this game. I've captured two states of game screen and made it into a little animation so you can understand what I'm talking about.

I have the same problem even with the Settings.

UPD: Sorry, forgot to mention. Steam version, Windows XP SP3, GeForce GTX 260, latest video card drivers.

UPD2: I tried v1.1, but nothing happened.

I have the exact same problem.

Using Xp service pack 3, GTS 8800 512mb.Drivers from march the 3rd.
3.25 G RAM.

What's weird is that I never had this problem before.I played the game fine a few month(s?) ago.It must have been some update that changed it.

Exact same problem, with the main game, the settings app, and the 1.1 exe.

Steam version, 9800GT (Forceware 295.73), Windows XP (all latest updates applied).