I had the same problem and looked very hard to figure it out. My standard definition picture was virtually un-watchable. It sounds like you are dealing with digital compression artifacts just like I was. It is the fault of the cable TV broadcast signal and not your equipment. There are two ways of dealing with this that I have found, but each has it's drawbacks.
1. Dump cable and go with satellite.
2. Get a digital compression artifact reducer, such as the Algolith Flea.
The Algolith Flea is not cheap at $1k, but most video processors are pretty pricey. However, it works exactly as advertised and cleans up block artifacts and mosquito noise very well. It brought my cable SD channels to approaching HD quality. In my case, I got the Flea-HDMI and the cable company disabled my HDMI connection shortly after I hooked up the Flea so I dumped the cable company and got satellite. The satellite hook-up is much better than cable right out of the box, but I'm also running the Flea with the satellite and I have absolutely no complaints with my SD signal now other than the occasional jaggie, which is more of a de-interlacing issue than compression artifact.
These are the solutions that I can offer. Maybe somebody else has a better idea?
