I get a similar problem, I'm running an ATI Radeon 9600 XT, I though for a while that it was my graphics card causing the problem, tonight I'm going to try putting an Nvidia card in...
I've got my MCE machine plugged using the Svideo out from my graphics card, into my 32inch CRT tv. Windows seems to work perfectly, MCE, is just funny.. black screen when loading (i hear the MCE startup jingle) Bringing the start menu up causes the screen to redraw in the same way that Spawn1905 mentions.
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If i use the windows start button the desktop comes back. If i click on mce it comes back up until i do something with mce and then it goes black and the signal not supported error comes back.
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The only difference is that I see my desktop with a black rectangle on it after I click on MCE. I think this is a driver issue?
Its odd that a few of us are seeing it with display adapters from different manufacturers.
---- Several Hours Later... -----
Just put in a different graphics card (Nvidia) and all works perfectly, definately graphics drivers causing my issues...