Hi, I would keep that LG if I were you, It's a super unit for the money, I have already tried some of the other brands and NONE worked as well in ALL departments as well as the LG, i.e.: recording formats/quality especially SP & LP Mode, Divx playback, Hdmi Upscaling, wma/mp3 and other features.
Forget even the latest Samsungs, they are too unreliable and didn't even play Divx properly. The Pannys are superb but as yet no divx.

I connect my SkyHD box from TV-out to av input 2 on the LG, and LG to TV with HDMI Socket. I have seen the problem you mention but it records fine, and as I don’t watch my Sky through it all the time I don't care about it. The Playback quality is certainly not the best around; but for a cheap do-it-all recorder is plenty good enough on my 37" PannyPX70, and a LOT BETTER than a standard DVD Player without upscaling. Only niggle is it keeps switching back to 575p from 1080i and I have to reset it occasionally.