... I enable Anti-Aliasing in video options. I can reproduce this, so it is not a one-off thing.
Dxdiag: http://pastebin.com/m33bd9d75
With AA set to 2: http://img244.imageshack.us/img244/4959/pic1aaum8.jpg
With AA set to Off: http://img166.imageshack.us/img166/8397/pic2noaacq1.jpg
This bug also appears when I don't run windowed. My mouse was over the citadel building on both pictures. Obviously this is a bug, but maybe it can help you track it down so here's another piece of info: when the outlining was disabled, I could no longer target demigods as easily as I could since the outlining was implemented.