I am actually able to restore the display to normal after this issue occurs, if I open and close Display Properties a couple times.
I was able to prevent the issue by setting my Video Hardware Acceleration in Windows to the second notch before None (there are 6 notches from None to All). Of course this is not a proper solution because at this level of acceleration, normal things like web browsing become too slow, and it is not possible to watch videos correctly.
I found this entry in the system event log at the time of the freeze:
Event ID: 108
The driver ialmrnt5 for the display device \Device\Video0 got stuck in an infinite loop. This usually indicates a problem with the device itself or with the device driver programming the hardware incorrectly. Please check with your hardware device vendor for any driver updates.
For more information, see Help and Support Center at http://go.microsoft.com/fwlink/events.asp
So it definitely looks like a driver issue, or at least driver related. Unfortunately I am using a Dell Precision corporate desktop and the latest Intel video drivers for my video chipset will not install ("will not work on this hardware") so I will probably have to go through Dell Support to find a driver update.
In the meantime I wonder if UltraEdit has a setting to prevent this, or if a future update/upgrade works around the driver/display issue.