Yes, the PC Engine natively outputs a horrible picture. The composite output is much worse than anything else I have ever seen. Walking past houses in Ys IV makes the rooftops flicker, for example, really weird.
Since the PC Engine's video chip natively outputs composite (and to some degree, RGB), they could've easily put a connector on it, but instead they chose to release an "add-on" (here are the add-ons again) to output a picture pretty much just as bad as rf. Ridiculous!