I have a similar problem with the water display and patch 1.12 installed. In my case it's definitely a game issue and not a system issue. I can fix it on my system by doing the following:
1) Load the latest save game
2) Press 'ESC' to go to the menu and click on 'New Game'... confirm that you want to start over and skip the intro movie by hitting 'ESC'.
3) When the new game has started just hit 'ESC' again and load the previous save where you want to continue playing.
4) That's it. The display bug(s) should hopefully be fixed now. I'm not sure what exactly is causing this bug either but it seeems to have to do with the creation of the world files. Basically, it seems you need to load it once (loading your old save), then clear it and reload it (by loading a new game) and then the world cache is "fixed" as it should be so you can now play, load, save, do whatever... until the next time you start the game (you will have to repeat the procedure every time you start G3).
Hope this works for you as well but as Wulf pointed out, also make sure you have all your drivers up-to-date (especially the graphics card drivers) and all Windows updates and that you aren't running too many background apps etc (in other words: check the usual system optimization stuff).