Check the resolution in the display settings (under Windows Control Panel). Not all of the settings have the same width-to-height ratio, which will cause circles to look distorted. Pick one with a different ratio and see if that helps.
Thanks for the input Roland. But the original screen resolution was set to1280x1024 pixels and was not changed. Anyways, with a few restarts of SW and system, the problem automagically resolved.
Did you tried changing the Image Quality under Tools > Options > Document Properties.
I used to work with someone that had this same problem. But that was after they
got a new monitor that was a wide screen.
I would agree with roland that the height to width ratio needs to be adjusted because
that was their issue.
As far as the desktop image, was it set to tile, center or fit screen? Fit screen stretches it and
distorts the image and maybe that is leading to this problem. It shouldn't, but don't want to leave
any stones unturned.