No, thats expected Paul.
Scart control Off - Picture will always be PAL (Composite) regardless of whether you have it set to RGB or PAL in the other setting.
Scart Control On - Picture will be either RGB or PAL depending on what is selected in the other setting.
I have seen this a few times that people say 'PAL looks better than RGB'. This is just not true and never will be, RGB is the optimum setting if you using a Scart cable. PAL is never sharper regardless of what you may believe you are seeing, with PAL you will get a fuzz around text and images, I think some people believe this to be increased sharpness but its not, its picture noise and its horrible. Still not convinced? Have a look at bright colours on PAL then RGB, you will find that RGB produces much more vivid, rich colours than PAL. RGB is better than PAL, thats not my opinion its just fact.
Sorry if that sounded like a rant, it wasn't intended to be, I just get annoyed when I see people watching on composite or PAL when they could and should have it set to RGB.