Hi Lee,
From your description it sounds as though you could have a duff set.
My friend has the predecessor to this set, the KV36FS70. His dvd and digibox are both connected through RGB, the Tv's processing is set to DRC 50, and the picture is extremely good.
I have never seen any of the problems you describe, although sometimes I think that the quality of blacks can look a little suspect, though not as bad as they sound on your set.
I think that your best course of action is to contact the dealer you bought the set from, and arrange for a visit from an engineer.
Many people have had to return several of these sets before they have received one that was up to standard. It could be that you have received a problem set that has found its way back into the system.
Cheers,
Bob.