My Westinghouse 37" 720P acts the same way… If I use the DVI to HDMI cable the picture looks terrible, harder to notice with movies, but windows and icons look grainy and pixelated. I thought it was just 720p because I saw my buddies 1080p pc media center and his 46" LCD. It was amazing.
Then I switched to a standard analog VGA cable and the picture is completely perfect… Just like my computer monitor.
I couldn’t be happier. I don’t care if it’s HDMI or VGA, as long as it looks crisp… and now it does.
Could it be that we are using analog DVI to HDMI cables? Im not even sure what I had, it was the one connecting my HD receiver to my tv… I may switch back to component cables, I thought they looked nicer anyway.