I also have the same problem with my ATI TV-Wonder VE and WinXP. I open the MMC and I get scrambled video but the sound works fine. I got around the problem by doing this:
1. Open MMC (double click on the TV icon)
2. As soon as the MMC logo pops up open Internet Explorer. Explorer must come up before the MMC TV window is on screen.
3. problem solved. The video looks perfect.
It's really wierd. ATI really needs to produce better drivers. What happened to all their driver developers?? I remember back in the day when ATI made rock solid drivers (remember the Graphics Pro Turbo, etc).
Well I hope these steps help you get around the problem.