Your image looks perfectly normal after you have messed with your 3D settings, it's just antialiasing. The manual is your friend:

"Global antialiasing settings in the 3D card settings menu can make panels and bitmap fonts look blurry, depending on the 3D hardware and driver version. Use d3d_antialias for scene antialiasing."

Set your 3D card antialias setting back to application controlled and everything will be fine.