The more interesting question is why would you buy a TV that is THAT bad at showing S-Video sources?
About a year/18 months ago, I bought a 32" LCD HDTV for a school I work for - it has every connector known to man (2xSCART, S-Video, RGB, Composite, YUV, VGA, HDMI, and even good-old "analog aerial"), FreeView built in, thin enough to go on a wall and all for £350. And it does *perfect* display from any of those ports without any problem at all. In fact, we use it as a scrolling display for some advertising material for the school (run using PowerPoint at 1280x1024 from an old PC which is 50m away using a Cat5-VGA extender), the caretaker uses it to watch football on FreeView and it also gets everything from DVD's, video players, camcorders etc. plugged into it on special occasions.
S-Video should be able to easily provide a clean signal for a 32" TV without problems (in school, we have projectors projecting 8-foot images from a S-Video, or even just plain composite, connector without quality issues). If your TV doesn't, then you need a better TV, not to splat expensive chips, connectors and bandwidth into an embedded device - it's not the S-Video or the device output that's the problem, your TV just isn't capable of handling it.
I *hate* buying new things so I'm still on an old 37" 4:3 CRT TV personally, the image for which is usually bigger when showing a widescreen movie than a lot of "widescreen" TV's! I love how many people have fallen into the trap of buying HDTV's without checking how good their SD picture is (which about 10% of the time is utterly diabolical) - the manufacturers do it deliberately so that they can show you the "difference". And the same people fall for it again with BluRay vs DVD, 4:3 vs widescreen, etc.