Don't worry Captain, all systems are in good shape!
The DDI is doing exactly what it's supposed to. It's important to remember that unlike the 3D image in 688(I) the DDI is NOT an accurate picture of your surroundings; it is a representation of what your sensors detect. The target you have selected has not yet been identified, so all you get is a rough position and a low confidence rating. Since you have yet to establish range it's really just a direction until more data becomes available. As you gather information on a target the image will change - first to a general surface/subsurface contact, then to a type (Merchant/Warship etc.), finally to the specific kind of vessel. Its position will change as well as its range and speed are calculated. By the time you know exactly what the target is, the confidence bar will be high, the image in the window will show the proper vessel and the map pip will show its proper range and speed - right up until the last update, of course.
Cheers Captain! And happy hunting.