I'm using only lxqt-panel here, Not the old lxpanel application. Issue
isn't with lxqt-panel as the popups on taskbar work fine.

Whats strange here is that after the upgrade from 18.04 to 20.04, everything 
was working fine including the transparency / selection background in the . I 
did change my Login session to lxqt-session.
Then once I ran "apt dist-upgrade" it left the system in this state so I doubt 
the issue was with the initial upgrade from 18.04 to 20.04. I will try making a 
fresh VM with 20.04 in it but that will have only VGA or QXL graphics card 
unlike my hardware Intel HD Graphics 610 GPU.

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https://bugs.launchpad.net/bugs/1961048

Title:
  pcmanfm-qt ugly dithering on mouseover highlights

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