I suppose I too would try removing the Denon from the equation and hooking the XA-2 directly to the projector first.Having read the last few pages... I have not found a problem quite like mine, but as I am using a Denon 2700H, it does make me wonder.
I just moved and had not used my XA-2 in quite some time... and during the move a gave away my A35 thinking I would never need it again.
After the move, I set up a new theater with mostly new components (projector and receiver), and everything played nicely... except the XA2. I do get a picture onscreen, but it is very low rez and looks like a young child colored it with crayons.
I have re-initialized the unit and even tried to get it to update via an ethernet connection (which could not contact the server of course), but nothing so far has made any difference. I have tried changing out cables (they are premium high-speed cables), but that did not make any difference either.
After reading here I think I am going to try hooking the player through the Denon with component cables and possibly HDMI straight to the projector to see if removing the Denon from the chain fixes the problem.
If anyone has seen this particular problem... please let me know what solution you found!!!