mouse-face highlighting broken?

[David Reitter]

I'm trying to track down a problem with mouse faces, where some  
portions of text propertized with the a mouse-face do not respect the  
mouse face, or at least not the "background" attribute of the mouse  
face.  The types of properties I am concerned with here are the  
background of images and the space allocated using the display/ 
space/:width property.  (See also screenshot.)

It may be quicker for me to track down the problem in the code than to  
compose a standalone bug report.  Could someone tell me where such  
properties are evaluated?

Also, have there been any changes compared to 22.3 that could effect  
such a bug?
I tried undoing 9d77a3 (see below), but that wasn't it.

2008-05-27  Chong Yidong  <address@hidden>

        * xdisp.c (draw_glyphs): If mouse-highlighting is on, attempt to
        draw overlap glyphs with appropriate highlighting.