You have some setting enabled that is causng a dump of your overlay onto the secondary display. This is a FEATURE. We have a similar feature in our control panel as does Matrox. Try installing a full set of current NVIDIA drivers and then have a good search through anything about controlling overlays or video.
The primary usage of such a setup is to allow you to have a TV connected as a secondary display and automatically force the video to full screen on that device. And this is to work around problem with MS' Direct VA and overlays on a secondary device (they're not supported apparently - I still don't have as affirmative nor technical a description of this issue as I would like - and it pissed me off considering where I work)
The ATI drivers have yet ANOTHER feature to work around this. For anyone interested (even for th future) it's located in the Multia Media Center Configuration application. It's the "Enable Multi Monitor Support" option under the DVD tab (first tab). This in fact works for any format using the same codec supplied by ATI for DVD playback. If you are using a different codec, it may or may not support multi-monitors already, depending on how it is implemented. Using this feature DOES use an overlay on the secondary display, but I believe it's not going though DirectVA (damn, I hope that's the proper term for the API I'm thinking of). It's supposed to have a performance hit but seems to work very well.
Hope this was informative. Moral of the story: Buy ATI products.
Bruno
Edit: Ya, I didn't read the last two posts before replying.. Hehe. But at least it confirms what I suspcted. Ok, I more than suspected, I was positive. :P