well, after reading and posting more on the windows on arcade monitor thread I decide to give it another try; and it works!
It turns out the component cable I was using must have a short or the way I wire it cause some singal to bleed. While unplugging the h-sync to see if it's on tight I was able to get a clear picture when the cable is just barely hanging on the contact. Here's what MK2 looks like now the text is sharp!

and here's the way I have it setup in terms of hookups.

I basically hacked a RCA cable for my RGB and I hacked up a stereo RCA to mini-jack for the sync. Does anyone know how the contacts are wired for these RCA type cable? do I just need to worry about the middle contact? or do I need both the outside and the inside? (outside is ground right? or something else?)
Here are more pictures of the result. I am actually pretty happy with it. Although it's not quite as vibrant as a TV I think it looks pretty good. CMT-7 is pretty nice. I can even output 1024x768 (unreal 2003 demo) take a look at the screenshots below.






Now I just need to figure out how to get rid of the ghosting.. I think this is because of the way I wired it right now. Maybe I need to find a way to shield the output to the arcade monitor better. any suggestions?
almost forgot.. unreal 2003 demo running at 1024x768
