Sub-project creates half green screen in SE2

[donx]

I have a slide show with some motion, colour correction and rescaling. When I select all and create sub-project, the bottom half of the images turn into a green mesh design.
I'm using XP-pro with SE2.
It all plays fine until I turn it into a sub-project.

[donx]

I just re-opened the project and tried again to make a sub-project after selecting ALL. This time the bottom half of all the frames is filled with the bottom half of the last picture I was looking at in the Preview window from the last project I just closed..
So, somewhere, there is a buffer of this picture that isn't being cleared properly.

... but at least the bottom isn't that ugly green thatchwork :help:

[donx]

More testing report:
The problematic project file was originally created in SE1.55 and added to in SE2.
Sub-Project creation works fine in SE1.55 but when I create a sub-project in SE2, then the bottom half of the viewed screen is corrupted with old buffered images.

I was using .jpg images in the problem project.
This problem does not happen in SE2 with a recent project using TGA files.