@FKNetwork: I have to say, that is really weird. The upscaling to 1080p is supposed to be done in hardware (so no slowdown) and I never heard of it causing tearing problems!
Well at least you solved your problem! I suppose the picture doesn't get much worse in 720p compared to 1080p, as 1080p is very likely upscaled anyway.
My Mario Kart Wii friend code: 2707-1866-0957