I have march 2006 360,official cable,playing it on 1440x900 monitor and picture quality is simply beautiful,never had problems with it,everything is crystal clear.
That looks to me like multiple reflections in a cable,you have one strong signal and a lot of smaller ones that arrive later.
Also extended settings is a must for PC monitors,it was implemented because of them.
also how do I turn off my monitor scaling and do console scaling?
You can't,monitor(unless you have a crt one) will always scale if not fed with native content.Solution is,feed him with native resolution.