Monitor displays colors badly, almost as if it' set to 16bit mode

I always notice the "stairs" effect, in a game for example if I throw a smoke grenade, the smoke isn't smooth and I can see the differences between shades of gray. Here's what I mean: (sorry for my terrible Paint skills). I tried setting the monitor to 16bit, and noticed that it does get worse in 16bit but 32bit looks almost half as bad as 16bit. I only use 1920x1080 (my monitor's native resolution) for games and windows. First time I really noticed this problem was in Skyrim, where the smoke in the menu looked really fucked up: my screenshot but that's EXACTLY how it looks on my computer too.), is this a normal issue in LCD monitors? I have Samsung EX2220X ( and Asus GTS450. I have latest drivers for both. What could be the problem?
Edit: I forgot to mention that I have a digital cable not an analog cable for the monitor.
Also my card seems to be working fine, in fact it actually works better than other people's gts450. I can overclock to 985mhz and can run latest games at highest settings except AA.
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