Take a look at my first dongle video:
http://www.youtube.com/watch?v=Wmayyx1C6DUI inverted the colors to negative with the dongle => You can see those strange lines/artifacts.
Then I inverted the image back using software (Rivatuner) => Lines still present.
In the second video I connected two dongles (Rev A0 and Rev A2) => no lines present
http://www.youtube.com/watch?v=mnCb3_5ncc4The image will indeed get sharper using the capture device.
Edit: The blurry image of the current Rev A2 dongle either comes from bad shielding or the transistors are too slow to handle the bandwidth.
Bandwidth is calculated this way:
[(Pixel x Hz) /2] x 3
[(640x480x60hz) / 2] x 3 => 27.6MHz
[(800x600x60hz) / 2] x 3 => 43.2MHz
[(640x480x75hz) / 2] x 3 => 34.6MHz
[(800x600x75hz) / 2] x 3 => 54.0MHz
But the dongle needs to handle 3 steps using 100MHz transistors.
Edit 2: So my next step will be about these two possible problems (Bandwidth and Shielding). I also thought about the idea Radu once had, adding variable resistors so the brightness can be tweaked manually.