It looks like you're running a Vista skin on XP. If that's the case, you'll have to put it through Skinstudio and do some mods to it so it'll fit XP. I dunno though, it's a very strange problem. It appears as though the image isn't being stretched according to the dimensions of the windows.
Check to see if maybe the skin has an XP substyle along with a Vista one. If it does, choose the XP substyle and apply it.
