Thanks to James-F – he modified the firmware so that the auto-gain control is re-enabled when the COMB flip is set to ‘Auto’. You can e-mail me at email@example.com for the HEX file.
Additionally to further clarify:
*Genesis encoders are awful. There is a chance it will not improve for Genesis/32X devices
*It is worth double checking, via good quality s-video or component cables, if you believe there is something wrong with your copy of the device.