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We have talked about the Xbox 360 video/colour problem previously, and now Microsoft have released an Xbox Live update that fixes it.
This is a mandatory update and you should see it the next time you sign into Xbox Live.
This is what Major Nelson said about it:
This update will increase performance and is part of our continued effort to provide the best possible Xbox LIVE experience. In this update, we are providing a fix to a color issue that some were experiencing, and it will be immediately notable in the dashboard. The fix is also being applied by partners to their apps on Xbox LIVE, which we expect to roll out over the coming months.
So go update now!