Yup, after studying the subject more it really seems to boil down to this. Most LCD TVs take in VGA and assume PC levels, but x360's VGA sends video levels. If there's no switch in your LCD for changing the type of the input, the image will be washed out.
It's not entirely MS' fault, but given that so few TV sets are designed to take in video-level VGA, I can't fully accept the decision. On most LCD TV's the fix could be done with firmware upgrade adding the switch or having the repair man come in and adjust the TV set manually from service menus.
So, If you're shopping for LCD TV to use with your x360, you should add the support of video-level VGA to the already lenghty requirement list. I wish I knew then when I was shopping for my LCD.
If what you are typing is true, then all those who play their 360 on a pc monitor via vga is screwed. Considering one of the main features of the 360 is to hook up to a pc monitor, i doubt MS overlooked the issue. But who knows. If it is true then it would explain the contrast and true black problems, and it would mean that it could be fixed by MS via a patch. That's is if they give a shit, and are listening to their customers.