I have this same issue as well using PVconnect as the media server on my HP MediaSmart Server, f/w 1.06 on the DSM-520.
Last night while watching a slide show, it came to one photo that was smeared distorted on the lower half, the player reset (like changing video resolution from 1080i to 480p) for a few photos (which then filled the screen). It reset yet again when the show looped to that same smeared distorted photo.
I'm connected via component thru a HK A/V receiver, then by component to my HDTV. The DSM is setup for 1080i and show photos in original format.