I had this problem too. As soon as I had installed Winterboard I saw it had made subtle changes to the default theme. For starters, it changed the way that the folder names were abbreviated, so for example I have a Category name called Strategy and Sim, which on default iOS comes up as 'Strate...& Sim' as the whole thing can't fit under the icon. However, Winterboard seems to change the number of maximum displayed characters so the whole thing came up, and was consequently squished next to its neighbour.
I also had this issue of the shadows being removed and at one point after restarting my phone, the text came up entirely gray! I checked the Winterboard options and everything was disabled/off, Needless to say, I uninstalled Winterboard and that fixed it.