I think the OP stated this was on a normal SD channel (480i), if that's the case, then I'd say the graining and artifacts you saw are normal. Your television settings can help a bit, but you'll really never be happy with SD (at least I know I never am). Some outboard scalers can help (note help, not fix), but they are usually expensive. Some higher end recievers have onboard scalers in them as well.
Your TV will always scale everything to 1080p, since that's the native resolution of the display. No, there is no way to turn this off, the only way to bypass the TV's scaler is to send it a signal that's already 1080p or 1080i (in which case it will still need de-interlacing).
Bottom line, SD stinks, so stop watching it and go get the U-571 BR!