Are you using 480i or 480p setting? I don't see anything wrong in the system menu, and in Zelda it's maybe the way the game video engine renders it, as the Wii doesn't have Anti Aliasing, it looks jaggy. (but you didn't notice it before softmodding?) I have these weird jaggy edges in the volcano level too. Sorry, I'm not sure if there's something wrong. Did you check another game?