Corrupte image

That's a real shame :/ .. I does sound like DirectX is the problem. Or maybe the graphic drivers, I have a NVidia card and it gave me problems using PickedSurface.
Uninstalling DirectX seems to be a big problem, but maybe you could use system restore if you're on XP ? I tried to write some code that does the same as yours, sort of as a checkup:

	Graphics 640, 480, 0, 2
	
	;create array
	Dim im_l(480)
	
	;select block height
	fStep = 1
	
	;draw ovals on screen
	For i = 0 To 1000
		Color 0, 0, Rand($FFFFFF)
		Oval Rand(800), Rand(600), Rand(120), Rand(100)
	Next
	
	;create/grab images
	For y = 0 To 479 / fStep
		im_l(y) = CreateImage(640, fStep)
		
		;method I
		;GrabImage im_l(y), 0, y * fStep
		
		;method II
		CopyRect 0, y * fStep, 639, fStep, 0, 0, BackBuffer(), ImageBuffer(im_l(y))
	Next
	
	;main loop
	Repeat
		
		Cls
		
		time = time + 1
		
		;draw images	
		For y = 0 To 479 / fStep
			DrawBlock im_l(y), Cos(time + y) * 50, y * fStep
		Next
	
		Flip
	
	Until KeyHit(1)
	
	End

I think you can make a workaround for this trouble, since images with a height of 5 are working, create the images at 640x5, but only CopyRect one line on it. This way you'll need 4 times more memory, but you can avoid this nasty bug. And have you installed the lasted Blitz ? Maybe you could try downgrading to a previous version.

(edit)
He, I was thinking .. maybe you could load the image with LoadAnimImage, and then set the tilesize to 640x1 ..