I just found out that the GPU on our phone is disabled by default
Force enabling it gave me "unbelievably" smooth graphics. Text no longer fades and blurs while scrolling. Also, the occasional lag I get while playing some games seems to have gone.
However, the graphics drivers are very old and buggy which causes major graphics artefacts. Thats probably the reason Motorola has disabled the GPU.
Motorola, in their ultimate wisdom, decided to disable the GPU altogether instead of updating the kernel, and adreno200 libs
To try this, change the following in build.prop:
NB: screen will keep turning white while navigating thru system menus. Taping the screen will bring it back to life.
And before someone asks, no we can't update the libs either as they require the Gingerbread kernel (.35) while we have the Froyo kernel (.32)