Have you tried turning OFF the AutoMotionPlus processing, and changing the name of the input from "----" to "GAME" mode?
With DVDs, there is bound to be some artifacting, since you're essentially taking a 480 resolution picture and upconverting it to 1080p. Particularly with fast motions, this is going to cause some image distortion in fast movement, but the Blu-Ray quality shouldn't suffer when a 1080p signal is coming in.
I just purchased a Samsung 40" LCD w/ 120Hz Auto Motion (model LN40C610) from Future Shop. The first set I got was obviously defective with numerous problems. I returned that one and got another identical set. There are no obvious defects as best I can tell, but to be completely honest, I think the picture on this TV is crap. I have an Xbox 360 Elite and a PS3 hooked up to it via HDMI. The Blu-Ray playback on the PS3 is pretty decent with no noticeable quality issues, however, watching DVDs and playing games on the PS3 and the 360 (at 1080p w/ Auto Motion on) is pretty bad. There is a lot of blur, fragmenting (especially on the 360) and other display issues. I've tried numerous games, multiple HDMI cables, tried plugging the TV directly into the wall, then into a power bar, etc. Pretty much everything I can think of to resolve the issue, or at least identify the source of the problem. I'm very disappointed with this television considering I already have a 120 Hz 46" Samsung that's about a year and a half old, and it smokes this one in terms of picture quality. I'm thinking of returning this one as well and going with a completely different model, however, I'd like to stick with Samsung as my experience, and friends experiences with them, has been unblemished up until now. My concern is that it's the Auto Motion that's the problem. I'm open to any suggestions on how to improve the picture quality on the set I have now, but I'd also like some recommendations on other 40" LCD TVs that I could consider as an alternative. Thanks.