Since a PIP set has two tuners it sounds like the chroma circuit on one tuner is shot. Now this fortunately is a less expensive repair. If the set is fine otherwise then go for the repair but first get an estimate. It will be cheaper than a plasma flat screen of similar size.
A reputable repair shop should charge no more than $300 (should be less) MAX for this repair.
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Jan 25, 2013 - Uploaded by Tampatec
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You have a bad video board. If you can find one used it is fairly easy to replace once you get into the TV itself. Your color guns could also be adding to this problem. I am not familiar with this television and its components so I dont know if you can replace one color gun at a time or if once one is shot then all three have to be replaced. That should be a start for you anyway.
OK this problem is caused by a failing electrolytic capacitor back in the power supply. It's job is to filter AC interfence from that voltage source. Locating the correct capacitor is something not for a do-it-yourselfer. A respectable tv shop experienced with Mitsubishi tv's can usually repair this problem in your home. Average repair cost would be between $200 and $300.
It sounds like you have bad solder joints in the tv. If you resolder the boards in the tv, it sounds like it will be fine. When you are slapping the tv, it is temproarly making contact again and fixing the picture..
If the source to the PIP input is a color signal then the PIP display will be color. PIP sets have two video sources one goes to the main screen while the other goes to the PIP. it all depends on what the format of the signal is being sent to each input. This is quite normal.