Can you get a picture of it maybe?
I plugged my Xbox/GC/PS2 into my Dell monitors (2005FPW/2405FPW), using S-Video and sometimes component, and I thought it looked pretty good. Sure it looked more pixelated than on a TV, but it still looked great in my opinion.
I should be getting this monitor tomorrow and I'll test it out and see if I get the same problem.
Its possible that its a faulty monitor, but I don't know. I seem to recall reading someone plugging an external DVD player that upscales to 720p/1080i, and they complained that it looked terrible, so I don't know.
It does have Faroujda's DCDi processing chip, so it should in theory be good at scaling non-native images.