I have a Mitsubishi HD tv and it works similar to MooMooEgg's. The "Full" plays everything in the native aspect that your DVD or gaming system is outputting. Surprised your "normal" feature doesn't. You're "Widescreen" mode is probably similar to what my system calls "Stretched" which is the TV manipulating the data, so yeah, you probably lose quality.
I wonder if you tried using a different component input on your tv if you get a better result.
Yeah, I am going to switch out the cables.....tv itself is proven to work well....it is perplexing!
Thanks, everyone