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Matt has been testing and we’ve determined that the issue is due to the new settings.
As James-F mentioned, we set the S-video luminance filter for higher bandwidth, thus preserving more details for clean sources – which should be virtually all S-video sources using proper cabling.
Unfortunately, the C64 has an inherently noisy output. While the new firmware’s image is more “true” to the signal, it also means that all that noise is now being pass straight to the image.
Matt and I are figuring out the best solution. Right now, I have a test build that has another s-video mode that turns the luma LPF back on.
I sent Matt a copy of the firmware with an additional mode for S-Video (NOISY). And once again, a thank you to James-F for helping me decipher all these various registers.