If you enable the "Static students column" feature of the Grader Report, feedback is displayed as plain text during the mouseover operation. If you disable it again, it is displayed correctly. This happens in IE 7 & 8 but not FF 3.5.5.
I have tested these versions and all have the issue :-
Moodle 1.9.6 (Build: 20091021) (Bumping for 1.9.6 release)
Moodle 1.9.6+ (Build: 20091104) (Updated the 19 build version to 20091104)