Thanks for your reply. I have tried the above and still get the issue. It seems to be just WTV format video, recorded and Live TV, when I check the Media Centre Debug mode it say interlacing is off. I have found low quality TV station playback with correct aspect ratio. The problem is with all major Freesat UK channels (I guess H.264?).
I have taken recorded files from another media centre that play fine but not with this system. The system is based on a Gigabyte GA-Z77-D3H (rev. 1.0) Motherboard. It seems that the Intel Graphics Driver combined with WTV video is not working correctly?