Thanks for the replies!
I have also tried the following: Fresh reinstall of the sh3 plus mod, Removed nvidia graphic drivers and reinstalled them, and updated pretty much every driver on the machine. But I'm still seeing the problem.
I played around with the graphic setting but they didn't make any noticeable change. So in the end I left all the defaults for the nvidia graphics control panel. AA and the like are all set to default application controlled.
I did notice that problem happends more frequently when it's a clear sunny day with hardly any wind. I do not see it ever when it's storming.
Also, I seem to have a problem with the moon and sun, if I look for a time they also have spurts of distortion.
However, I have not tried reinstalling DirectX, I will give this a go
It just annoys me that I spent a ton of cash for the 8800 Ultra and have display problem.
I love this game and the addition of all these mod has made it outstanding, I may just have to ignore the problem.