|The latest drivers does not resolve the issue, I believe. |
When WinXP starts to load, it starts with a low resolution background. Your monitor's internal scaling engine rescales this low resolution background to its native resolution which should be much higher if your LCD/LED monitor is relatively new. Therefore, the background appears pixellated because LCD/LED monitors's rescaling engines are not that good.
After WinXP loads fully, the gfx card drivers load fully, too. Then your gfx card, which has better built-in scaling engine, takes over and rescales the background to your monitor's resolution or to the resolution which you have set using your gfx card's utility or WinXP's utility.
This is not an anomaly and should not create an eyesore because it takes quite a short time for WinXP to pass this loading screen.
When WinXP came out, the LCD monitors were smaller and CRT monitors were abounding. So this did not create an issue.
Hope this clarifies the situation.
Note: If you want better resolution during load-up, you must switch to Win 7.