Original User: mboeringa2010
I don't know if this is in any way related to your issues, but I have seen issues with ArcGIS 10.0's (SP5) hillshading too.
In my case, display issues arise when I use the dynamic "Use hillshade effect" checkbox in a raster DEM layer's properties under the "Symbology" tab.
The problem I witness, and that I still haven't figured out what causes it beside some bug in ArcGIS 10 display engine, is that somewhere half way down the ArcMap Dataframe display, the hillshading effect stops being displayed and the DEM turns into its ordinary "flat" display. In the attached image you can see this. Please note the exact location where this happens is NOT fixed, if I pan the frame, the horizontal border shifts to another Y location in the dataframes coordinate system, and is also not fixed on the screens height. It seems rather random.
The usage of this particular DEM has proven stable in any other respect, no issues or crashes, just this display issue. I haven't had time to report this to ESRI yet, nor time to really make sure it isn't some weird raster data set issue. I have, however, imported the data into a file geodatabase and that still gave the same issues.
For my purpose, I solved the issue by calculating a separate hillshade layer using the Spatial Analyst tools and adding this to dataframe. By setting a transparency on the DEM, I can get an acceptable "hillshade" type display without the same issues arising as in the dynamic hillshading effect of the layer properties.
Marco