The transcoding should work quite transparently with the wiring you've described. The "out of range" message is not one I've seen the 990 produce, and it sounds more like something a computer monitor (or their cousin the HDTV, particularly a CRT) would say if the signal was weak or distorted. When you saw "out of range" was it on top of the messed up picture, and if so was it also messed up or was it clear? If it was clear, that would further make me suspect the TV was adding it due to problems with the signal.

I assume that all of the inputs are set to the correct video source (composite, s-video, or the correct component input) and that all the cables are firmly in place and not reversed. Another thought: all of those sources are producing 4:3 images (except perhaps the XBox) that are going to remain 4:3 (the 990 will not add pillarboxing). Since your HDTV is probably set to treat the incoming signal as 16:9, that would explain the horizontal stretching and may even explain some of the blurring. Can you tell the TV that the signal is 4:3?