The ebay seller issued me a refund, so that's cool.

I've ordered another one from amazon that seems to be 5v compatible.

The 7" is actually a good performer and the 3.5" has more issues with Moiré and color bleed, but I haven't experienced a signal as bad as you are showing.

Prob not the safest thing to do but it has worked for me for the past few years,

If you are using a wall wart, then maybe the AC power is causing your issue?  I think they need DC power.

Disclaimer: I am no expert and am probably wrong. Just trying to help.

So now I'm really at a loss here. Do these only work with 12v?

EDIT: Just tried it with my nes supply (what is that, like 9v?) and it was the exact same story.

What does the image look like when displayed in full screen mode? Is that damage in the upper right corner?

It looks the same, just stretched out. No color change. That isn't damage, it's just the stupid screen protector thing I haven't taken off yet.

I'm trying it with both a genesis and an NES and I get the same results.

What is strange though, is that initially I was using a multi A/V selector box thing and thought maybe that had something to do with it. It did not. But it has these push buttons on it that actually physically go down and complete the circuit, so there's no digital logic going on inside at all. If I rapidly press the same button down the screen glitches/flickers, but at times it will show the full color for a split second. I would assume that rapidly unplugging the rca cable would do much the same thing.

Is it possible that my screen is stuck in pal mode? Is this even what it looks like when you run an NTSC system on a pal screen?

My other idea is maybe there's a grounding issue? It looks like the only ground going into the screen comes off the 12v barrell. Shouldn't each rca jack have it's own ground?

Check your power.