We have used picamera with PiCapture with no issues at all, and so I’m sure it works.
From your description, it sounds as if you are not setting up picamera to expect “Mode 6” video (640×480) resolution, which is what the SD1 produces. The image you are seeing in the corner is the data being supplied by PiCapture to the GPU, and the rest is junk from the video buffer.
If you have problems resolving this, please provide the python code and I’ll take a look at it.