Why are you using a UMSA VGA to SCART? Is your TV a consumer type which only has SCART inputs?
yes correct and yes its a sony consumer CRT TV 25"
If everything is working correctly I would put the blame on the UMSA - are you able to test another set which can take RGBS via BNC or YPbPr/Component via RCA straight from the Corio2?
-yes i have a Sony BVM (why are you not using that you say?? well, the sony's TV screen is bigger

i tested via a high quality scart to BNC (RGBS) cable to the BVM (using the UMSA) but to my suprise,.it has the same issue for the xbox360
With a simple cable the C2-400 can output both of those signal types and it will tell you if the UMSA is doing something funky.
-I made a vga to scart cable myself to rule out the UMSA as the problem and again with that cable the same effect occurs.
I also have a XBOX360 to SCART cable (original xbox cable) and using that on my 25" i do not have the problem but off course its 480i now, and no 240p
Did you also see that output options the 360 has?
the only output options i found in the xbox360 are the console settings for display and those are set to 640x480 / Normal / Standard (tried the other settings like extended to but to no avail)
When i set the corioC2-400 aspect to letterbox, then the issue is not present..wierd...buth its interesting
What i do not understand is that dreamcast console hooked up the same way, does not have this issue, there are both outputting 480p using the dreamcast VGA and XBOX360 VGA cable right? So strange..
Tonight when i get back from work, i will post a better video of the issue i am having