You may have hit the nail on the head with the scanlines issue-- as I move the camera, it looks like an interlaced image (one set of lines moves first, while the second set is a moment behind). The weird thing is I've tried all the possible resolution settings in the console (480p, 720p, 1080i) and I still notice them. I did make sure the HD switch is firmly set. I even tried switching it to "TV" w/component still connected and same symptoms occur. I will try using the normal composite inputs and see what happens.
Next to the component inputs, it does list the progressive 480p & 720p resolutions, so my TV does support this. I've also checked the TV menu settings and it is set to Progressive (it also has interlaced and Cinemotion as options). Then again, maybe I'm sitting too close to the TV!
Are you sure you don't have a rare CRT that does 720p and your playing in 1080i? Whats your tvs make and model