I’ll report my future progress with this into this post here in case you or someone else appreciates it. When I have something to add, I’ll simply edit this one (if I remember) and not post another reply.
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I took my 32x32 character and my 200x200 background room and resized them to be twice their original size (so for example character is now 64x64). Because sprites are bigger I changed the zoom from 5 to 3. Currently I see no distortion in small window mode. Neither in maximized window mode. Nothing wrong with fullscreen. Even the “set game window size to 1280x720” seems to work perfectly. I’m not ready to call this fixed yet (I have developed trust issues over this) but it currently looks like there is no distortion is any of the mentioned modes, in either display. Based solely on this, the problem seems to lie in too small sprites (for my project settings) or in zooming too much.
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I Just tried to set to zoom back to 5 while still using bigger (double size) sprites. Now there is distortion in unmodified windowed mode (in my understanding this is 640x360). “Set game window size to 1280x720” results in very slight distortion. So slight that if I were not this zoomed in, I might not be able to tell. Makes me question of this was actually present in my successful 3x zoom experiment too, but because it wasn’t as zoomed in, I couldn’t tell [checked, I don’t think there is ANY distortion]. Fullscreen is perfect. These apply to both displays. Small window size, big resolution and big zoom (or their combination) are definitely suspects. For me this might be acceptable since I don’t think I need to make the sprites appear this large ever, probably.