I am using an NVIDIA GeForce 9500GT card with the newest stable driver (195.62) on a PC running Windows 7 64-bit. The PC is connected to a Sony KDL-46W4100 LCD TV via DVI to HDMI cable.
When I open a 1080p mkv file in MPC, VLC, or WMP the screen goes black for a second, and when it comes back the colors are washed out, not just in the video but the entire display. Once I stop the video the screen goes black for a second, and then goes back to normal. This does not happen with 720p content, just 1080p. In VLC if I change the zoom to 50% the issue is fixed, but once I bring it back to 100% the issue comes back. In MPC the issue remains no matter what zoom I use. In WMP the issue exists when in full screen or when the window is maximized, but if the window is not maximized it looks fine.
After playing around with the NVIDIA Control Panel I realized I can recreate the issue by changing the "Connector" value to "HDMI - HDTV (Audio Disabled)". When I apply this setting the screen becomes washed out. If I set it back to "HDMI - HDTV (Audio Enabled)" the display goes back to normal.
I tried doing an EDID override in the registry to make the driver recognize the cable as DVI instead of HDMI, which worked in terms of connector recognition, but it made the colors washed out so I got rid of the override.
The video itself doesn't look that bad when the issue is happening, but I have a feeling there must be a loss of quality since the background looks so washed out.