That sounds uh, bad. So you put in the AC1 disc and it looked fine, but then the AC2 disc on the same setup looks like a jaggy mess? wtf...
Yeah, it's weird. I don't know what the hell happened, but I do think it will look a lot nicer on PS3. Some people are saying the "lag" is meant to be there (for certain strikes), but I don't remember it in the arcade version.
Again, I have to stress that this TV is kinda weird. I really do expect it to look better on another set-up; even the original AH doesn't look as good as it did on my Bravia. I've got the PS2 on an old Samsung...it makes a lot of games look weird; the HUD text in both Arcanas is really hard to read.
Holy crap at that animation. What is there, like three frames per character?
Welcome to the animation of every 2d fighter on the market post SFIII 3S

The only 2d fighters with better than awful animation have been Guilty Gear, Blazblue, and probably KoFXII. No one has the budget to do in-between sprites for the small fighting game market anymore :\
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I'd give it to both Last Blades, Garou MOTW, Blaz Blue, Hokuto No Ken, Basara X, and KOF XII. Guilty Gear always seemed "off" to me with its animation; you get these high quality sprites but the lack of frames makes them really stand out. Oddly I don't feel this way about HnK and Basara X (another disappointing home port) though.
BTW I'm getting Oboro Muramasa for Wii and Sengoku Basara Battle Heroes for PSP tomorrow too. Time for a new import impressions thread...