I have the same problem. I tried doing the alt+cancel button, and played with the backdrop options, and it still happens. Though I noticed if I toggle the background option the preview clears up and I can see my changes correctly, however it still makes things tough because when I'm making a change it shows a different area of the image under my cursor.
It almost seems like a video card issue because if I click on another program in the windows task bar which covers the liquify window, then switch back to photoshop the area of the liquify preview which was covered with the other window is redrawn with another area of the image (similar to what happens when I use a tool).
-George
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Check to see which backdrop, backdrop mode and opacity are set. And/or try
option/alt.+clicking the cancel button to restore the Liquify UI. Hope that helps, Bryan