Videos played through the console have appeared washed-out since the latest dashboard update.
Xbox Live director of programming Larry Hryb said it is aware of the issue and will provide an update soon.
"We're aware of the colorspace issue w/ some Xbox video apps & are working on a fix. No ETA yet but we hope to have an update soon," he wrote on Twitter.
The latest dashboard update added the Metro interface as seen on Windows 8 and Windows Phone 7 devices.
It also introduced new video applications and entertainment apps, including Netflix, LoveFilm, 4oD, Channel 5 and LOVEFiLM for UK users and Comcast, Verizon, Syfy, TMZ and HBO GO for the US.
Watch a video for the Xbox 360 dashboard's new entertainment services below: