The Intel 915GM chipset that the MB896 uses is present in many notebooks - I don't think there is anything inherently "bad" in the design. It really sounds like the video output is out of range for the lilliput. Perhaps the registry is corrupted and it is trying to display a resolution that is out of spec?
If you can get it to work in safe mode, then it really points to a driver issue.
The MB896 has a way via the BIOS to set the resolution of the LCD panel (I know you are not using the onboard DVI connector, but sometimes the CRT is "cloned" from whatever setting the LCD resolution is set at). I would try adjusting that to 800x600.
I would also try disabling the Video BIOS caching while you are playing with the BIOS.
If that fails, then reinstall the video driver by booting into safe mode, uninstall the display driver using device manager, then reboot. It should come back with a generic VGA driver and ask you to install a driver for new hardware found (the video chipset). Try cancelling that and install the version you downloaded. Reboot and cross fingers.
If all else fails, reinstalling WinXP is an option...