Sorry for a somewhat delayed response.
First, if you press control-alt-f2, is the text normal on that screen?
Second, do you know what kind of video card is in this machine? This command may provide a clue:
or it may return nothing.
cat /etc/X11/xorg.conf | grep -i -e driver -e device
Does changing screen resolution make any difference? If you can't use the GUI to do it, add into xorg.conf:
and change the Modes line to different resolutions (1024x768, 800x600...). It's not a problem for that information to be missing from xorg.conf--the X11 used by Hardy attempts to auto-detect such settings on-the-fly--but if you explicitly specify them, it will use the settings you give it (as long as it doesn't think that they'll damage your hardware). Remember that you need to restart X (control-alt-backspace is the quick and dirty way) for updates to xorg.conf to take effect.
Identifier "Default Screen"
Monitor "Generic Monitor"
Also, are you able to move the mouse off the screen? Can you scroll around--in other words, if you move your mouse to the right side of your screen, does the viewing area change?
Finally, this command might help:
It will reconfigure X, which probably won't solve anything, but it's worth a shot.
sudo dpkg-reconfigure -phigh xserver-xorg
If we think that things would work normally in Gnome, then this must be a configuration issue, not hardware, so hopefully we'll get pointed in the right direction and solve the problem soon.