When I cast Alteration it now causes the whole screen to turn yellow and I cannot cast it.
If I access spells in the "Q" menu they appear in my hand but my mouse buttons won't make me cast them.
Light sources also turn the entire screen yellow at random places. (The whole screen literally goes yellow)
??????
Are you running an AMD card? What's your driver version?
I discussed this in the other thread about 1.6.89 going live...this seems to be caused by running an older version of the AMD drivers. How old I'm not certain, but certainly older than 12.4 (which is the most recent official release; there's the 12.6 betas out now as well). You need to update your drivers.
If you can't update your drivers, say because you have a laptop and you can only use manufacturer-provided drivers, and the manufacturer's only providing super-old driver versions, then you're going to have to disable Skyrim's in-game AA and then force AA through the Catalyst Control Center. Obviously this is only a bandaid fix, and upgrading your drivers is the best solution since it actually fixes the issue.
Same thing for me screwing up the game. Not the same problem but I can't even launch it anymore, I wish I had the previous version saved but I didn't even know this update was going live today.
If you're running SKSE or Script Dragon, you'll need to update those to the latest version. SKSE has a version that will work with 1.6; Script Dragon I'm not so sure about.