1280 x 1024 res was not included in the US 360's. I had to connect to live, and it updated my 360 for 1280x1024 res support.
Ya, i noticed the different TV options for picture quality in PDZ, all it really does is adjust the brightness setting in the game, so either way the best i can get it to look is on 6 brightness level.
Things are looking better on my 360 via vga cable and pc monitor. With the added 2xAA to halo 1 & 2 emulation, in the latest live patch, the two games look much better then when i first viewed them on the 360.
Colors and overall picture quality looks good now, but there still is not enough contrast to brighten up my display (i have my contrast level maxed out at 100). Increasing the brightness setting just washes out the picture. Not enough contrast seems to plaque all CRT pc monitors, although i never had this problem when playing pc games, or xbox games via a transcoder (x2vga).
I'm tempted to buy the VD-Z3 transcoder, as it accepts any component cable input. Maybe it would produce a more vibrant picture for the 360 on my crt monitor.