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sounds like a possible video driver and/or modem configuration problem. What com port / irq is the modem configured as? what type of video card are you using? Have you tried reducing the video resolution to test if the same problem occurs (this will confirm if the problem is related to video drivers)
Have you tried changing the configuration in WinFax to use direct to COM port instead of TAPI (or vice-versa?)

Have you tried using HyperTerminal to communicate with the modem directly by typing AT commands to it directly? There is a document to show you how to do this if you need to. This would at least confirm that the modem is OK and it is a specific WinFax problem and not a hardware setup problem.