Of the little time I've spent so far with several VC TG-16 games(via component progressive scan), they all appear to be more or less perfectly emulated. They do sound a little weird when played through surround sound.
The only hitch is that blurring filter effect(just like Capcom's Classic Collections), which I assume is a result of the image being scaled/stretched to 480p. The one time I tried playing my real actual Duo with S-Video on my LCD, it was choppy and ugly(since it sucks at 240i).
But VC games look fine, and my TV would display the new signal info it it did change formats when launching a Turbo game,so it must be 480p.
Which makes VC gaming worth the high price of admission. Plus, even with the blurring, it's still a clearer crisper picture than you can get from composite on a real console and more importantly, it has the nice vibrant color that you only get to see through emulation or an rgb/s-video mod.
I just hope that we get the opportunity to pay a one time fee to run CD games. I'd glady drop 2000 points for that.
EDIT: right after posting that, I fired up Super Star Soldier for the first time, a game I haven't really played on real hardware before. Although I never noticed anything going behing anything, on the second stage, at the same spot a power up often gets frozen in place or places for a while. The first time it happened, a green power up got stuck behind my score until I went after it and kind of pushed it around till it came loose.