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I think this is more of a Game Pass-version problem, but don't quote me on that. It could also be, as you suggest, AMD's FSR being an issue as FSR 3 is somewhat blurry compared to DLSS. I tried forcing XeSS in various settings and config-files to see if it would help, the settings-files suggest that the game supports it, but no amount of configuration actually changes the blurring when moving. As I noted the game looks very crisp and clear while I am standing still, but once I start moving the character becomes very blurry, same with the robot and vegetation around me.
I would prefer to play with no upscaling-techniques at all, but with the way the games launch today I hope more and more add FSR 4 support.
Yeah, I think we just have to wait for a patch to fix the settings/engine-issues on Game Pass.
I actually finally moved away from that starting area and started playing it a bit, and the game itself is really fun. It is a bit different compared to the first game, but I've laughed quite a lot already, though I am struggling to get immersed and really enjoy it because of the blurry graphics. Even after playing for a couple of hours you can't really get used to it, because the moment you stop moving you are reminded how it is supposed to look, and then you start moving and the crisp becomes a blur again. So you get constant reminders that it looks ugly.
It's still a bit of fun though.