It's clearly a vertical sync issue. Have you tried it with other sources? Any reason you're using 12.6 rather than the newer version? I'd check in the service menu for a v-hold or v-freq adjustment, though I doubt it's that. For some reason it seems your TV doesn't like the encoding of the sync signal. I'd try increasing/modifying the vertical sync pulse of the monitor preset, but I neither think it's fixable that way. Sorry, I have no experience with component transcoders.