I'd have to wonder if it's not your TV. I have a 37" Westinghouse 1080P set, and the picture looks fabulous via VGA. I wanted to go to an Elite of course, and just run everything with HDMI... but I couldn't justify the extra expense quite yet. Especially when I've had 3 older 360's die, and had to wait for MS to send me someone else's unit Refurbed. The next 360 I buy will be an Elite through EB or GS with the $50 warranty, so I can swap it in-store for a BRAND NEW UNIT... (not some damn refurb) if any when it has issues.
Anyway, I've run component to my Dell 2405FPW LCD, and I got very faint (but too noticable for me) pink bars using the cable that came with my 360 premium system. And yes, it was set to component correctly. That's why I got the 360 VGA cable for full price when it first came out, and I've found it to be EXCEPTIONAL. Whether on the Dell, or now in the front room on the Westinghouse, it looks REALLY good. Can't emphasize enough how much better my 350 looked with it.
But I'm definately waiting for an Elite at this point. More HD space and HDMI make it a no brainer for my next system.