LG 42LS575T Pixalated/Blurred text - HELP !!!

I've just bought a LG 42LS575T LED Full HD TV.

I can't seem to get the picture set right, it looks very Pixalated and if any text/writing is on the screen from a commercial etc its is very blocky/blurred/Pixalated.

I've messed around with all the picture settings and have run out of ideas. I'm running my Sky box through and HDMI, which has output set at 1080, which the TV is.

Any ideas? Is the tv broke?

Thanks