Microsoft has said it is aware of color output issues with the Xbox 360 dashboard upgrade, and is working on resolving the problem. According to a tweet from Major Nelson, there is a “color space issue with some Xbox video apps,” and while a fix is in the works there isn’t an ETA on it at this time. Engadget notes that some users have also reported issues with “HDMI output having HDCP authentication problems” with various televisions or receivers, which black video output. Digital Foundry also noted a while back that 1080p output had been downscaled in certain videos to 720p internally, making black appears more grey in color. Plus, third-party video partner offerings seem to be limited to 720p only, while Microsoft-hosted services have a “clear quality advantage.”
These issues have been noted by users since the new dashboard was in beta, so hopefully the fix Microsoft is working on will be implemented before too much longer.