Limited RGB is TV standard and full RGB range is mainly used on PC.
Lots of converted videos on PC are compressed with full RGB range. It means that on TV(PS3) better to set full for this content(TV have to support full RGB). Then black will be black and white will be white.
If TV support only limited range, TV takes 16 as pure black and 235 as pure white which means 0-15 and 236-255 are not possible to display/colours are vanished, picture is too dark.
At the opposite, when you will play TV record(limited RGB) on PS3 with full RGB, colours in range 16-235 will be incorrectly interpreted, because coded black(16) is not black in full range and you will see "dark grey"(16) instead of black(0).
For example CoreAvc have settings how to display video content on TV or PC(full or limited RGB)
Solution can be setting parameters in mencoder to convert limited RGB(16-235) to full (0-255) and vice versa depending on TV and video material. But if your TV doesn't support full RGB, don't enable it for proper black;-) If you enable it, PS3 will send to TV that 0 is black and 16 is dark grey, but TV will ignore 0-16(black) and display dark grey as pure black = very dark picture....colours are in short shifted (mainly black and white are greately visible)
