WIN XP(SP3) 32 bit LBC 1.137.01.
System launchbar docked along left edge of screen and autohiding.
LBC docked along left edge of screen reserving space.
When a window is opened on the desktop (double clicking any Folder shortcut) and the hidden System Launchbar is activated by mouseover it flashes four times on its first activation.
Re-activating the system launchbar without changes to the desktop does not produce further flashing.
Opening another Window (again, double click any folder shortcut) produces a new window ON TOP which again causes the System launchbar to flash four times when activated by mouseover.
Again, re-activating the system launchbar without changes to the desktop does not produce further flashing.
Open another window and voilla, a flashing system launchbar.
The flashing is definitely associated with windows opening or being activated/moved to the top layer. Even if the windows are small enough not to overlap, the latest window is still considered to be new to the top layer and therefore causes the flashes.
The effect does not occur when the LBC is docked on any edge away from the system launchbar.
There must be a logical reason for it always to be four flashes - probably related to the number of active virtual areas on the system launchbar; Windows Button, Quick Launch Bar, Message Bar & Activity Bar.  If there were more toolbars active, then I am certain there would be more epileptic triggers :).
Should this be considered a bug, or a feature requiring an advisory note, to avoid the system launchbar location with LBC docks?

WIN XP(SP3)32bit LBC 1.137.01
System launchbar set to autohide
If the LBC dock is parked at the same edge as the system launchbar and set to reserve space, then both can co-exist.
If LBC is then set to slide, the system launchbar can no longer respond to a "mouseover"
If the LBC "activation zone" was set to be a few pixels clear of the edge and a few pixels wide then it should be possible to "pass through" the LBC activation zone and still find the hot spot for the system launchbar.
I'm convinced I can see the edge of both bars when they are both hidden because there are two distinct "stripes". the outermost being the blue system colour whilst the innermost is the grey "aluminium" of LBC. When the mouse activates LBC then it can be seen to obliterate the blue system "stripe".
I know the workaround is to park them on opposite sides but then again "If I can see 'em I should be able to activate 'em", and, parking things on the right always seems to conflict with resizing windows when they are already close to the bottom/right corner.