your not alone, clearly there is a bug in the game, someone somewhere i hope will fix this bug that makes the game completely unplayable.
its also worth mentioning that its only the game that gets the rainbow texture pixelation. when i open the xbox menu to return to dashboard, that menu is crystal clear, no rainbow texture pixelation, and the dashboard is fine as well.
1st gen xbox 360, component cables. pretty sure its safe to say im running the same setup as everyone else whos having this problem.
thanks you guys who posted vids and pics of this. if i can i will do the same.