Unfortunately vga= doesn't work with grub2 (it's deprecated). Did you
manually reinstall grub1 or just refuse to install grub2 when prompted?.
I tried some suggested grub2 alternatives (eg set gfxpayload=keep in
/etc/grub.d/00_header and setting GRUB_GFXMODE in /etc/default/grub) but
it didn't fix the problem.

FWIW, I also get the screen corruption when I suspend, resume, and shut
down, ie whenever it switches out of the CTRL-ALT-F7 console.

I have tried the vanilla 2.6.31.3 kernel and it also has the problem. At
that point I thought it might be a grub2 issue but if grub1 also has it,
perhaps it's an xserver problem? I'll try an older kernel to see if that
fixes it.

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Can't switch to console mode
https://bugs.launchpad.net/bugs/447765
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