Try adjusting the Judder and blur settings located in the custom 120 group. It does make a difference, it takes a little trial and error before you get it right. I noticed the same thing on my LN55640.
I have a Samsung LN404640 40 in. 1080p LCD TV. The "AutoMotion Plus" 120hz setting looks terrible. I first noticed the issue when I was watching a DVD on my PS3 (Weeds: Season 4). There is a scene when a character is walking around a house with the camera holding on him. As the background passes by, a strange blocky halo appears around him. It was very annoying and at first I thought it might just be a DVD upconverting issue on my PS3. Nope. I tried it on a regular DVD player and had the same result. Then I bought the game Metal Gear Solid 4. I absolutely must turn off 120hz because there is ALWAYS a strange blocky halo around my character. I also had this issue when watching the Transformers Blu Ray. At that point I just turned off 120hz for good. Needless to say I am very disappointed after investing almost $2000 in my system. I don't know what to do at this point. Does anyone have any ideas how to solve this problem? Thank you.