I've seen this on all units, and it can be heavier and readily-noticeable on some of them. It's a byproduct of the method used to alter certain properties of IRE, luma, and contrast. This is the main reason I don't always use the BVP4+ units at all times. It's worse on composite signals because it's a composite signal. In my opinion, the BVP4+ almost shouldn't have composite in/out, because it's really quite horrible. Always use s-video, even if that means juggling some extra VCRs to make it happen.
It is in fully working order, yes.
You can tweak the internal pots with a screwdriver, and it may help to clear this up.