Ok, so so far everyone who has reported this problem is using a Neomagic 
MagicGraph chip, and i think they all have been with the same driver.
Looks like now Hardy is out quite a few people are having the problem with this 
hardware/software combination.

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xfce4-terminal window borders / decorations / widgets being incorrectly drawn 
(xubuntu 8.04)
https://bugs.launchpad.net/bugs/194769
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