I apologize for the delay of this response. I've been on the road and in meetings last week, and am finally catching up.
SD channels will unfortunately look "far worse" than any other TV in the house if every other TV is a standard definition TV. One of the things I might do is see if your DVR will output only 720 and 1080i signals. The 480 resolution is standard definition, and you want to see if maybe you can get your box to upconvert the picture a little before it sends it out.
The onscreen guide will look pixelated because that also is being broadcast at the output resolution. It will likely look better in 720p or 1080i. But the guide will match the output. So you can't have a 1080i screen guide mixed with a 480p resolution picture behind it. The box knows this, and defaults likely to the lower resolution.
If you need a reference, one of the things I might suggest you do is go to your local retailer and have them show you all of the HD televisions showing a SD picture. Chances are, it will look very similar to what you're seeing.
Keep me posted.
I just bought the LN40a650 and have it hooked up via HDMI to my HD DVR (Comcast) and my Bose Lifestyle system. The HD channels all look pretty good, but I've noticed that everything that is a non-HD channel, regardless of whether it's analog or digital, is VERY pixelated. I understand from other postings that it's like zooming up a low-res jpeg and I understand that concept. But these channels now look far worse than any other TV in the house, and I just want to be sure I've done everything possible. I've currently told the DVR to accept all resolution types (480, 720 and 1080i) -- would it be better to tell it to only accept at 1080i? I tried both and wasn't sure I was seeing a difference. The Bose is set to 1080i. AMP and DNR both are off. Even the on-screen cable guide is pixelated. Any help you can provide would be greatly appreciated.