This didn't affect content purchased from Microsoft, but other content was restricted to 720p HD video playback. Now with the new update all video files can once again be enjoyed in the full 1080p quality.
XBox Live spokesperson Larry Hryb had the following to say regarding the update:
"a fix to a colour issue that some were experiencing, and it will be immediately notable in the dashboard. The fix is also being applied by partners to their apps on Xbox Live, which we expect to roll out over the coming months."XBox 360 users should automatically be prompted to apply the update and you can do so while your device is connected to the internet.