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Any one have any idea whats going on here.

What does the mesh look like? If you can, please upload the scene somewhere and we can take a look.

The problem exists with an offset of more than 0.0 on corners of objects. Basically, the displacement is self-intersecting at those corners which causes the geometry to look messed up. The proper way to do it, I have found, is to create a small chamfer at the corners and leave offset at 0.0.