In 2.41 (and 2.40) it is now possible to enable noise reduction for video other than DVD.
Video
- You can now use the [Frame Noise Reduction] and [Block Noise Reduction] settings for video content that is saved on the hard disk or storage media.
- You can now play upscaled video content that is saved on the hard disk or storage media. When the video content is played, it is upscaled automatically to fit the screen size.
The Frame Noise Reduction and Block Noise Reduction are on setting "2" by default after the update, so I think that's why you see a less pixelated video with the new firmware.
I checked some avi's in my HDD too, and with those settings enabled, it cleaned the videos noticeably.
It's no placebo, the improvement is there at least for video that's on your HDD or other removable mass media: I'm not sure if they improved the DVD upscaling too, haven't tried any yet with the new firmware, and I doub't if I'd be able to reliably tell the difference anyway.