Your ATI 5850 is better than mine and you run on much lower settings than me.

I run on
Windowed 1680x1050,
Multisampling 8xMSAA,
General Drawing Quality 8 (Standard),
Background Drawing Quality 5,
Shadow Detail Highest,
Texture Quality High,
Texture Filtering Highest.

Have you tried yanking up the graphics to see? Do you have DoF turned off?