Use generic mode instead. You cannot use the optimized modes for VC games (at least not for 256×224 games) because the graphics are prescaled to the Wiis more standardized output. Granted, I have only confirmed this for 60Hz VC games (e.g Wonder Boy in Monster Land for Genesis) because I have softmodded my PAL Wii and prefer to use the NTSC versions, but I presume this holds for the 50hz counterparts as well.
Still, I find it weird you get blur on the vertical axis. I never saw this on my display. What line multiplication mode are you using?