Seems to me the DMD is outgassing and needs to be replaced. Looking closely, do the dots themselves around the edges look darker/blacker when the game is off?

Could be the dmd, could be the dmd power supply. Check your DMD voltages and rule out the power supply.

Swap DMD with another game. Easy test.

Things to check. Reseat the ribbon cable going to the DMD.
Check all your backbox connections.
Check that the Rom chip and other socketed chips are tight.

Check your voltages on the DMD driver board.
If anything is off replace the caps on the board.

And as others have said if you have another machine. Swap the DMDs.

But the issues you are describing seem like failing capacitors on your DMD driver board. Capacitors have a life of around 10 years. If they are original replace them anyways.
It's probably not an outgassing DMD. As you say all dots light in test. And it works after warming up. Capacitors.

Dmd is outgassing.

I had a similar issue with a dmd. It was outgassing, and behaved/looked similar to yours. I'll warn you: by playing around with the game with that dmd installed it eventually fried some components on the high voltage section of the dmd power supply circuitry. (One day a fuse blew and i had no display. The outgassing dmd damaged a circuit board!) Be careful! I'd follow above suggestions: swap it with another good known working dmd. If that one works fine, then you know you've got a bad dmd. My best advice, as i said above: don't use it in that condition for too long, as it may cause more damage.

A post above said it could be capacitors, too--they very well may be on target. Just make sure to swap the dmd out if you can to eliminate the possibility that the dmd is outgassing.

Caps on the DMD board. To test....You need a multimeter that reads mfd.
Micro farads. You can see if they are within specs. But if they were never replaced you should eventually. They were not made to last as long as they have. And leaking caps can stress the other components in the circuit including the DMD itself.

Replace the DMD with a red led version. It will look great in Dracula and it won't matter how good (or bad) your caps are because it won't use the HV section of the board.

There is no real need to test the capacitors if another DMD worked fine in this machine, like Markmon said just replace it with a low voltage LED display then just pull both fuses from the DMD driver board to fully disable the high voltage section.

I both like and respect that "can do" attitude. A good resource for testing the DMD can be found here:

http://www.pinwiki.com/wiki/index.php?title=Williams_WPC#Display_problems

The high voltages of your BSD pin may be starting to get too low, low enough that this DMD looks like it does. Putting in a different DMD in this game (and seeing that it works) does not necessarily mean the original DMD is bad. Another DMD may be able to function fine with slightly lower voltages. Take this BSD DMD and put it in another game to see what it does in another game. It may work fine, in which case, you could just swap the displays for now.

If capacitors are bad on the driver board, you will get a scrolling effect like vertical hold out of adjustment on a an old CRT monitor. It won't look like what is shown in the original post. That's either a failing DMD or low HV power. (I'm leaning towards low HV).

The capacitors function on this board is to filer the remaining AC harmonics (aka ripple) from the DC voltage levels.

The easy way is to check them is to measure the amount of AC ripple riding on the DC voltage. This check is exactly the same as measuring the DC only you set the meter for AC (you need a true RMS volt meter for this). The negative side of the voltmeter will be on ground, you can clip this or stick it under the ground braid. The voltage you are looking for is +62V at J604-8, -113V at J604-2, and -125V at J604-1. Keep in mind, all of these voltage are there whenever the game is powered on, there is no interlock for them. With the meter on AC you should see very little AC voltage, realistically anything under about 500mv I would call good. You can also measure all the DC voltages at the same test points while you are checking these, just set the meter to DC. I usually check with everything connected by putting my meter lead on the metal prongs that bite into the wires on the back of the connector.

The harder way to check these is to use a capacitance meter to measure them, this way is the harder because it cannot be done with the capacitor in the circuit, you would have to undersold one leg of the capacitors to check them in this fashion, most people would just replace them both rather than check them like this.

I honestly do not think you have a voltage problem here, all of these voltages are sourced from the transformer so unless your game came from Japan (105V transformer tap), someone changed the transformers primary tap points to be 105V, or your home AC is pushing 130V you shouldn't have voltage high enough to overdrive the display.