I had a similar problem that I first noticed on the 360 dashboard. Some of the downloaded movies were grainy and background on the dashboard was grainy, but words looked clear. Then I noticed it on World at War, very grainy appearance during gameplay and also on Left 4 Dead was almost impossible to make out masses of zombies (they looked like one big shadow). I tried a different cable , no change. Tried different inputs on the TV, no change. Inputs on VCR, no change. Then video went out altogether. I unplugged everything and then set it up again and haven't had the issue again, but I'm just waiting for the RROD to rear its ugly head.
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Re: Random Grainy Picture on TV setting
Unfortunately you are correct, that is a sign that the xbox360 itself is on it's way out. Make sure it is as well ventilated as possible. You may want to call xbox support 800-4-My-Xbox and tell them you have a RROD just so they will work with you on getting a replacement quickly.
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First go to the SETUP menu and make sure that the PLAYBACK VOLUME setting is set to a value greater than 0. Try increasing the shutter speed of any photos as CCD's will notoriously produce grainy images on slow shutter speeds. Grainy videos will indicate poor light, camera shake during filming or moving too quickly so the autofocus cannot function correctly, or using too low a resolution and will be especially noticeable at 640 x 480 when viewed on a large high resolution screen. If all the above make no difference then you may need to get the camera serviced.
You have a couple of options.
1. Turn down the sharpness on your TV. Too much is overkill, anyway.
2. Whilst watching any movie, hit the triangle button for the movie settings & options. Turn up the noise reduction to +3, also the "mosquito" noise to +3.
These should give you a less grainy picture. Enjoy!
If you can,using a different Tv. check the 360's video output settings ( Dashboard, My Xbox section, System settings?) -Maybe it updated at some point and automatically changed the original settings. Some( if not all ) 360's have a specific setting for HD output.
Also, check the Video/audio output cable from your Xbox to Tv, for a while some 360s came with a cord that could be changed between Component and RCA.
Symptoms are not related,what you hear is the high voltage turning on and that is normal if it only does it for less than a second,the grainy picture might be intermitant,dont turn it off,when the picture is grainy tap the side of the set to see if it racts and if it does you know you have a loose conection.This could be outside because of a loose ground on tha cable or inside in the tuner.