I guess it depends on the TV. My present one is an oldish Toshiba, it really dislikes 240p; not only do my Saturn and N64 look absolutely dreadful on it, but with the N64 and my Mega Drive it has regular fits where the screen twitches from side to side (almost like fighting static buildup or something). I used to think it was just my Mega Drive but it seems to be the TV.
When I don't want to rock my CRT for whatever reason, I used this Intec 360 LCD: http://www.amazon.com/Xbox-360-9-2-TFT-Screen/dp/B000BX57PE/ref=cm_cr_pr_pb_t Has composite, S-video, & componet inputs, has 2 head phone jacks, has 2 speakers, has a speaker pass thru. Best part is, the stand it uses to connect to the xbox works great as just a stand for it use without one. I'd try to find something like this if you don't want to take up much room. Sure, the screen isn't as big as you like, but I guess you have to make sacrifices when your old lady is bossy and picky.
Samsung HDTV's usually handle 240p well, Sony's do not. There IS such a thing as good and bad upscaling. Often the TV manufacturers will skimp on them for TV's 32" and smaller, because the affect of a lousy upscale is not as noticeable. My Bravia 32" looks putrid on composite signals, and won't run hardly anything 240p over component. So I had to move just about everything NES and newer through DC to RGB.
As far as I recall neither my Sanyo or former Viore accept 240p component. "signal not found" type error is very literally zero quality, haha.
My el-cheapo 40" Seiki LCD takes 240p component like a champ along with s-video and composite just switch the ratio to 4:3 (works out to something like 32") and drop the sharpness down to the second lowest setting. Since space is an issue, have you ever considered a projector?
