Valve Software sent along a small fix for a problem with the version 1.0.1.6 patches (story) when running the game in software mode. Here is a local copy of the file, which should be incorporated in the regular patches soon, and this is the description of the problem:

For those of you who are running in software mode and are seeing the sky incorrectly in Badlands and Crossover, please download this small update (122k).