I am curious with the setup you have described if you have tried watching Netflix or YouTube. I have experienced some oddities as well that are being discussed here:
What intrigued me is your description of how the video played. I have not had any problems regarding resolution when playing a DVD but we have experienced some reproducible problems when tying to watch YouTube or Netflix on the player.
What aspect ratio have you set the player to?
Just setup my BD-P1600 and watched my first movie on it with some strange results. My setup is 720p Infocus projector and I use Component inputs. The movie was a standard DVD since I didn't have a BD yet (Terminator Salvation). The menus were displayed fine. The movie played fine, no stalls. The picture was OK, though it seemed distorted sometimes. Hard to explain, but it seemed that when the camera panned side to side the picture was clear in the center of the screen but on the edges it looked like you were viewing it through a magnifying glass. It was watchable, but distracting. The thing that really made me wonder about the player is when the movie credits rolled, they were completely garbled and non-readable. I tried adjusting the resolution to all the various settings from the player and nothing fixed it. Any ideas?
I'll have to check which firmware version I have when I get home, but after reading many other forum threads, I'm concerned with updating that too.