Well, overlay hell, the most unpredictable and peculiar problem I had to face also myself in the past. But in my case, it was BS the only player that could work in overlay, all the rest were using RGB with awful, of course, results... At the end I had to format and start from scratch :(
1. You say it is working for some days and, all of sudden, breaks just by itself, did I understand correctly? When you play the video, is there any other player window open? This breaks overlay, for sure.
2. Have you tried overlay mode 2 from the general settings? This time is better, worse, no change?
3. Play some videos with MDVDP (no need to write ini files...
) in window mode (don't use fullscreen). On the left side of the player there is a little yellow dot blinking... Does it turn white, or it's becoming red?
4. Which codec are the files you're trying (DivX3, 4, 5, ogm), or it happens to all of them?