Top pictures are indeed horrible, I had this problem with some titles on my 360 last year after one update that messed up things. I hate when blacks become so black that half of the screen is nearly turned off, it's unrealistic and it's awful. What should be done is that you have it set to no upscale(bottom pic) but you adjust your TV settings instead, that way you get a better feel of how it was intended to look like and that you can put in whatever effect you like.
It's like photography, you never go for overly-saturated pictures that makes you think that they are more detailed and that they pop - image quality takes a hit from this. What you want is a natural picture taken directly from it's source then you can put in some effects that you like(on a tv that would be your picture-settings)
