Limited range of RGB levels said to be the issue
have been circulating since the latest Microsoft dashboard update was released that there was a problem with video not being properly displayed properly when played. According to a number of sources, after the update the colors are very washed out and somewhat muted.
While the difference might not be dramatic, it is pronounced enough that in watching video with motion in it you will notice. According to an anonymous beta tester who tested the dashboard update before release, he claims that Microsoft was aware of the issue.
Testing over the weekend by Eurogamer seems to confirm this issue with testing they did over the weekend. The first reaction to the situation is to adjust the monitor, but adjustment to the TV/monitor seems to creative havoc with the intended display for games. Eurogamer shows color-level-histograms that support the fact there is a problem.
So far, Microsoft has had no comment on this issue; but with the report from Eurogamer, they will not likely be able to ignore the issue any longer.
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