I have seen this issue as well, but only when playing back high resolution (HDTV 1920x1088) sources. DVD resolution sources don't seem to have an issue on my system(s).
Either way, I have reported my issue to a contact within Nvidia, and he said he will have their QA department look into testing the overlay with HD content. What this means in regards to a fix I am not sure. I guess we will have to wait for the next driver release to see if its been fixed for HD stuff - I am not sure what to tell you about lower res stuff like DVD.