Ms Dos - Full Screen Freeze

I reintalled Windows yesterday after a crash and also installed some critical updates for sp1.
When I try to run a DOS application full screen the display freezes.

For example RUN - EDIT
EDIT appears in small window and it works.
When I press ALT+ENTER it is frozen and accepts no keyboard or mouse commands.
When I press ALT+ENTER again it becomes small but stays frozen and all I can do is use "X" to close it.

Strangely the command console itself does n't have a problem.
So if I go RUN - CMD it comes up and I can make it full screen and type in the command line.
Now from this command line if I call an application it fills half the screen only and is likewise frozen.
I minimized the window using alt-enter and it slowed down everything in my computer. I think it needs reboot to return to normal !

I can't find the solution, though I tried properties, compatibility wizard etc.