I'm having similar issues on the PS5 version. I did have to set 120hz off and restart the game, as has been suggested elsewhere, in order to allow the in-game screen resolution setting to be honored.

That fixed an overall graininess issue, and the fact that the UI scaling was oversized upon logging in after the update.

However, it did not help with other issues, notably one similar to what the OP posted. When not moving, background objects become extremely pixelated. When I move you can see them not only blur and smooth out but they also become much darker, like someone is painting over the background with black ink.

Older zones overall have this problem. If feels like shadows and contrast have been dialed up to a comical extreme, to the point where anything with a shadow is just entirely black with no discernible details and the shadows themselves are ugly, blocky and pixelated.

The PC version does not have this problem, and neither does the PS5 in NEW DT zones, which all look phenomenal.