with a ati card and the old cat drivers it was something to do with the auto aa and stuff think it was called catalyst ai if you tuned it off it fixed it but that was ages ago sorry i cant be more help
terrainshader_hi.fx is the source of the issue... copy terrainshader_hi.fx from BF2142 and overwrite BF2's terrainshader_hi.fx. Trouble is it will fix the problem but then you can't play multiplayer because the game detects modified file.
I had this a few times after reinstal but it was even more blocky than yours. Older drivers cured mine, To long ago to remember what ones so just Google Best drivers for BF2 (insert your Card)
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