I've had a tire on my Corrado do that after hitting the mother of all pot holes. It bent all 4 rims, destroyed one tire, shifted the front subframe throwing the alignment way off and it even poped the interior light out of the headliner! Luckily all the damage was covered by my comprehensive insurance.
The tire that was destroyed slowly developed a similar bulge except it was through the sidewall not the tread. I think I have a picture on my computer at home.
