It could just be a faulty cable, or else pins on the connector being bent. We had one at work where we bent a pin around a bit and voila the weird colouration disappeared. (we did some research first to find out which pin was the likely culprit - didn't just launch in there)
Are you using the right kind of cable from the DVI-I output on your graphics card?
There are 3 categories of DVI cable:
DVI-A (analogue)
DVI-D (digital)
DVI-I (both analogue and digital)
Of the two digital DVI there is then a sub-category of dual link (DVI-DL, DVI-IL or DVI-IDL) which is required for HDCP ie playing of protected High Definition content. It is odd that Acer's own website say the AT2326 is not HDCP compliant, but yet it has HDMI and boast itself as full HD. Bit of a waste if not HDCP.
I think most DVI to VGA/D-SUB cables are DVI-I to VGA since this can handle an analogue output at both ends. I'm not sure if a straight DVI-A to VGA will work if the card is requiring a DVI-I output, and it definitely won't if the card is DVI-D. Nor will a DVI-D cable into a DVI-A to VGA convertor since it will lack the necessary analogue pins.
Much better info is here:
http://en.wikipedia.org/wiki/Digital_Visual_Interface