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Classic symptom of a bad video RAM chip. These are soldered to the main board, so if you are not handy with a soldering iron, you might be better off trying to get another console. The video RAM chips are relatively cheap (about $1 a pop), but there are 8 of them in there, all in a long row on the left half of the motherboard (they are TMS4116s). One of them is dead, so you have a bit stuck and that is what's garbling your display data. This is actually a relatively common problem, as I've fielded questions from about half a dozen folks this year on it.
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Thanks guys. I think I'm going to give the video ram swap a shot. Playing with the console was the whole point of picking up this beast in the first place. This also explains why anything I put into BASIC gives an "incorrect statement" error (took a while to decipher that) since according to what I've read on the web BASIC uses the video ram.