I bought an Xbox 360 more or less recently and I feel like I have trouble reading any kind of writing on the screen, and my eyesight is fine (at least with my glasses on) so I highly doubt that is the problem. I've seen the same problem occurring on what you'd call normal-sized font (for quests, tutorial, subtitles, etc.) in Assassin's Creed, Just Cause 2 and Splinter Cell Conviction.
I'm playing on a rather old (~10 year) 51" television. Is it possible that it is too old for the Xbox and its rather high resolution? I tried fiddling with my TV settings, but nothing I did really helped. I have had no such problem with my Wii or, formerly, my GameCube, but they both have much lower video capacity.
Best Answer
Since you're using the old(er)-school, one yellow cable composite video connection, your Xbox is outputting a plain 'ol interlaced SDTV signal.
Unfortunately, developers for PS3 and Xbox 360 have basically moved on from SD, and often don't really bother to have text or other interface elements that would look non-terrible at a lower resolution. Conversely, GameCube and Wii games are designed to look good in standard definition, since many more people were using those systems with non-HD TVs.
10 years old isn't as "old" as it once was, though. It's not out of the question that you might have component video inputs on this TV (the kind that has a total of 5 cables, three for video and 2 for audio). Component video would at least allow you to bump up to EDTV, which would likely help. Developers don't really design for EDTV either, but there's generally a pretty noticeable sharpness upgrade, particularly at such a large screen size.
If composite, yellow-cable video is all you've got on that TV, I'm afraid you're probably stuck with the blurriness. You might be able to play around with sharpness or some other settings, but a new TV's likely to be the true answer.