Bad Picture Quality On SD Channels With HDMI And Panasonic VIERA 720p LCD HDTV

I just bought a new Panasonic VIERA 32" 16:9 8ms 720p LCD HDTV TC-L32X1 for my in-laws when they finally had Verizon FIOS brought into their neighborhood last month.
Install was by the Verizon tech using the HDMI cable I also had shipped to them.
The HD channels quality is excellent, but the SD quality is smeared -- almost looks like an impressionist painting.
It is not the TV -- the TV menus are crystal clear, as are the HD channels.
And, it is not just the broadcast HD -- the DVR box menus are also smeared when viewing as SD channel, as is the guide and the pop up channel info.
We've tried all the settings on the TV -- Zoom, 4:3, etc.
The other TV (an older CRT) actually has better SD quality than the Panasonic.
My research indicates we're not the only ones on FIOS with this problem. Someone suggested using the component hookup rather than HDMI?
Other say that IMG 1.7 is supposed to solve the problem, that the SD quality was fine before IMG 1.6.
Any suggestions, solutions, or updates?
The picture is virtually unwatchable.
Thank you!

Here's a particularly relevant post if you don't want to wade through all the above links:
(http://forums.verizon.com/t5/FiOS-TV-Technical-Assistance/bad-pq-on-std-def-channels/m-p/10917#M5540) -- second to last.
"Re: bad pq on std.def. channels
01-06-2009 03:55 PM
Joe01880 - Being a new customer as of last October, I have never seen anything other than IMG 1.6.  My understanding from other posts is that before IMG 1.6, the SD PQ on an HD box was just fine.  I'm not sure what the complaints/gripes/begs were for IMG 1.6 but it seems to me that, if Verizon knows what changes were made, it should be straightforward to determine which changes caused a deterioration of the PQ.  I think it's been at least 6 months since the first complaints of poor PQ, so I don't really see how anyone can claim that Verizon is in danger of "rushing" an update to address this problem.  I also don't think that a forum topic, no matter how much it complains or gripes, will cause Verizon to rush.  I am much more worried that during a large portion of my 2 year contract that the issue won't be addressed at all, so I'm happy to add my voice to those complaining."

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