The Xbox 360's video player does not display video properly, a problem that testers reported during the new dashboard's beta period, and one confirmed by Eurogamer this weekend.
The issue seems to be that the new dashboard forces videos to display at limited-range RGB levels, which in layman's terms means the color looks washed out.
Eurogamer says that "the differences are hardly dramatic in a single screenshot," but "the effect is much more pronounced in motion, and it's clear that the 360's new dash is not functioning properly."
It seems to be a very technical aesthetic issue but one that becomes all the more recongizable, and nagging, when it highlights compression artifacts and macroblocking. Adjusting the monitor/TV display settings to compensate for the washout ends up screwing up gameplay video.
Eurogamer supplied color-level histograms to show that the picture quality is indeed different between the new dashboard and its previous version. So far there has been no official acknowledgment of the issue from Microsoft.
New 360 dash borks video playback [Eurogamer]