Interesting picture. The only problem I see is that it's been broken up into a bunch of discrete blocks, hence all of the stair-step edges on the tree trunks.

Is that what you see as the problem? The stair-step edges? This is a common MPEG artifact, however...

The scene should look fine if it's a "still life" scene. One of the things about MPEG artifacts is that they're more severe if the scene is changing significantly. For instance, I often see it happen really badly on pictures of trees and forests (like that one), but only if the scene is moving/changing. If it's a still picture, the artifacts should settle down after a couple of frames and the picture should look fine. Was there a lot of motion in that scene?

Another possibility is that you're seeing an anamorphic widescreen DVD being played on a DVD player that hasn't been correctly set up for a 16:9 display (when you have a widescreen display you're supposed to tell the DVD player about it through a setup menu). Or vice versa: a non-anamorphic DVD being zoomed in to fill a widescreen 16:9 display. You see, when a DVD player plays an anamorphic widescreen movie on a 4:3 display, it actually has to subtract lines from the scene in order to make the picture rectangular instead of square. That will cause the stair-step-edge effect, too.

It also might be the scaler circuitry in the TV trying to enlarge the 480-line picture to fit its 768-line resolution, but I can't imagine anything but the cheapest/worst TV having such a bad scaler to cause those stair-step edges.

Which brings me to my next point...

But which is better....LCD Projection or regular rear projection?

By "Regular rear projection" I'm guessing that you mean CRT projection, so I'll answer this question as "LCD versus CRT". Also, DLP sets fall into the same category as LCD, they're just brighter, so you can consider them pretty much the same. Here's my take on it: LCD/DLP versus CRT is not a question of "which is better", they both have advantages and disadvantages:

1. A DLP/LCD set uses a fixed-pixel display, so it cannot change the number of scan lines to fit the resolution of the projected material. For instance, high definition television is frequently broadcast as 1080 lines interlaced. DLP/LCD televisions don't have that many lines, so they must downconvert the image to their panel resolution (usually 720 or 768 lines). Conversely, a 480-line DVD must be upconverted to the DLP/LCD panel resolution. In both cases, a CRT-based HDTV will change the scan frequency of the CRTs to be the same as the broadcast material, or at least to an "even multiple" of that frequency and then line-double it to fit. So the CRT units have the potential to show a more accurate picture with less interpolation and less mangling of the image.

2. DLP/LCD sets do not need to have their convergence adjusted. They need much less maintenance in that respect.

3. DLP/LCD panels do not "age" the way CRTs do. They do not get dimmer over time and they are not suceptible to phosphor burn (a very serious problem with CRT based projection TVs). They also do not need to be color-calibrated like CRTs do after their guns have aged.

4. DLP/LCD sets need the projector bulb replaced once in a while, which is a significant expense. A CRT-based projection TV will only need its CRTs replaced if they become phosphor-burned or if they age and get too dim for your tastes.

There's a lot of other smaller differences, those are the big ones that I know about.