I've been doing some hacking of the SDL source code and I believe I have fixed the single buffering overlay problems that were occurring on ATI cards. I have got an ATI Radeon working with no flickering at all. I have also made it so the overlay can be moved to the background (not always on top).
For those of you who would like to find problems with this now BEFORE I do another release, download it at
http://www.xmission.com/~redflame/daphn ... verlay.zip
For those of you who choose not to test this out, don't complain to me if a bug slips into the next release as a result.