It happens with both composite and rgb scart (through a HDMI converter). Here are some video's I recorded last year to show the problem:
http://youtu.be/4C3p8kVK728 ,
http://youtu.be/tAZMrO-lc48
The megadrive video layer is fine as you can see but the 32X shows problems. It works fine on some of my friends TV's but not on mine. My HD LCD is a generic brand though and I plan to upgrade when funds allow me to but i'm curious about which brand HD TV's other's use their 32X with so I can get something that works for it.