The color difference is not because its RGB vs Composite. The RGB PPU itself uses a different color palette, it has nothing to do with RGB, composite, RF S-Video, Phonedorks mom or the monitor its being played with. Nintendo simply changed the pallet in the Playchoice 10/nintendo vs PPU's. Personally I think the palette looks much better. Overall the colors are brighter and more vivid, it looks heaps better than the composhit PPU even if you down convert the RGB to composite. The colors are not odd or unusual, they are simply different. Its just the brighter palette Nintendo chose for use in their Arcade cabinets and titler systems. The colors are what they would be on a playchoice 10/VS or Famicom Titler (that name still makes me laugh). Personally I will never go back to playing a stock Famicom, the RGB mod looks too good to go back to one. As for graphical flaws that was not the case with the NES (Was true with the Genesis) but is not the case with the RGB NES. Its simply a much sharper and more colorful way to play NES games. Personally I feel the composite PPU has a drab and bland pallet.
On a side note I RGB modded another AV Famicom last night and it is like sex for my eyeballs, thats how clear and awesome it is compared to composite.