Ah, I understand now.
The game always renders the UI twice for some reason (once on-screen, once in the world).
Usually the two overlap perfectly so the doubling effect isn't noticeable.
But when the game resolution is anything other than 4:3rd, then the aspect ratio for the UI and the fixed camera view no longer match, which cause the blurriness. Selecting a 4:3rd resolution or applying the widescreen patch make the two interfaces overlap again.