for AMD/ATI GPU users try this:
Disable Catalyst AI on CCC panel
This tweak also fixes blurryness on dx9 plugin when "Force bi/trilinear filtering" is enabled
My AGP HD3650 1GB card suffers from this as well and there is no way that should happen. What feature could be missing from this video card? It makes no sense.
Anyway, I'd like to find out what feature (if any) these video cards are missing or if Dolphin is doing something wrong here. R6025 is bad. Lets boot that commit out the door, Neobrain.

I already know what you're going to say...
I posted this a while ago, at the time I did not know R6025 was the cause.
http://forums.dolphin-emu.org/thread-12285.html
fwiw did you try Akafede's suggestion, disabling Catalyst AI?
If that indeed fixes stuff, it apparently really is a driver bug.
Disabling Catalyst AI fixed it for me.
So I was right that it was a driver issue and not a Dolphin issue.
Thanks to Neobrain sharing that bit of information, otherwise I wouldn't of been aware that the issue was solved.