Currently Being ModeratedAug 26, 2011 8:53 AM (in response to 2point5)
OK I've by chance discovered the problem.
The display resolution for the LED Cinema Display is 2560 x 1440. I have the Secondary Desktop set up as follows:
Display mode is Tile, Change picture every 5 minutes and Random Order.
With the display mode set to Tile, if there is an image in the folder ~/Library/Desktop Pictures that has a greater verticle resolution than 1440 then for some stupid reason the image is displayed distorted at the upper 25% (or thereabouts) of the screen. My opinion is that there is an issue with Lion in regards to the Tile mode of display. There wasn't an issue with these images in Snow Leopard used for the same purpose so why is there with Lion?
When the display mode option is set to anything but Tile there is no display distortion or corruption of any of the images.
The solution for the time being is to make a copy of the images that have a vertical resolution of greateer than 1440 and trim them.