This is a problem in Tiger with font smoothing. Turn it off (instead of down) from system prefrences > appearance and see what happenes. (Note: it may not be under appearance. I dont have Tiger yet so I dont know. It was under that in Panther.)
EDIT: Didnt read your post fully. I just realized you know where the font smoothing setting is. I would suggest turning it off compleatly. You may need to log out > then back in to show changes.