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I'm not sure if this is the emulator that's doing this or if it's just something that the game does. I've tried turning all interlacing, texture, speedhack, and CPU options on and off with no results.

The problem is that when the screen STOPs moving, a blur effect is applied to it, making all the text blurry. When the screen is in motion, there's no problem and it's sharp.

For example, when you open the menu, for about 0.1 seconds the menu looks like this:
http://i46.tinypic.com/zlputu.png

But then immediately afterwards it looks like this:
http://i45.tinypic.com/al4z8m.png

Does anyone know what's going on and if I can fix it?

try using r1888 if u dont. also download and put the 30 december plugins. in the window of pcsx2 when it runs this game it shows a resolution. put that numbers in d3d internal res. if u want a better image use the option below and scale it x2
if u still got problems try native res