Just to clarify, since he solved his problem, it sounds like the Windows Explorer is crashing. It automatically restarts when it dies, and it can look exactly like what you describe (all the icons going away and being redrawn.)
If you see that in a window and you desktop icons then that is certainly what is happening. Removing that DLL probably solved the problem because it stopped messing up windows explorer.
I would have suggested you try viewing the window in detailed mode, which would have prevented the icons being drawn at all. That would have pointed you directly at the icons/thumbnails being the problem.