***! I can't believe this either! Why why why. I initially used PS3 on my computer monitor for testing out the HD of the PS3 before I go HD telly. It looked brill (motorstorm and 007 1080p).
I have temporarily put the PS3 on main 32" Sony CRT TV, and to be honest, doesn't look bad at all through RGB Scart. Moved the DVD player etc.
Just tested what you said and am astounded. We get the worst aspects of the PS2 without the emotion engine

Why would they leave that protection in when it's supposed to be a HD machine and we are using it on an inferior setting.... bizarre.