The Canonical Display Driver is a little display driver that Windows uses to allow it’s graphics device interface (GDI) communicate with DirectX, so if you use later versions of Windows it is on your PC.  It is not a case of AMD Catalyst versus nVIDIA’s drivers, it lives further down in the depths of the OS passing data from the kernel level to the user level.  Apparently an exploit has been discovered that could allow an unexpected reboot to occur, which you could probably use to drive someone nuts, but also could result in remote code execution if the attacker found a way around a security feature protecting your memory space.  So far that seems unlikely to happen.

In the mean time The Register strongly suggests anyone using the 64bit version of Win7 to turn your theme to basic or one of the high contrast themes which will disable Aero and the Canonical driver until a patch arrives.

“Microsoft on Tuesday warned users of a vulnerability in 64-bit versions of Windows 7 and Windows Server 2008 R2 that could expose users to malware attacks.

Exploitation of the bug in the Canonical Display Driver would most likely only cause vulnerable machines to reboot, Microsoft spokesman Jerry Bryant said in a blog post. But it could also be abused to silently install malware, although attackers would first have to bypass memory randomization protections baked in to the operating systems to prevent code execution attacks, he added.”

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