After 30 minutes on the VGA cable the picture suddenly returned to the horrible image as in my first post. I have used a different computer for the vga cable so it is not the computer or the cable for sure.
I don't think a new lamp would help. The projector is not worth the cost of a lamp. I have an old VP 6120 that has a great picture and works great but has over 3000 hrs on the lamp and I can't give it away no one is intrested. Look on ebay for 1024 x 768 projectors and you'll find many for less than the cost of a lamp.
I am ready to try my luck and open the projector for adjustments. I just need a hint what could cause this kind of problems. I tried to watch some TV show through my receiver and same problem so the problem is for sure coming from the projector.
There are NO adjustments to be made inside the projector. There are only connections, but this does not look like a connection issue. This appears to be a problem with the image processor. not something you can repair. But, you can go in and see for yourself.
That projector is about 7 years old, looks like it's time to replace it. Sorry.