Thirded. You really should only use DVI for connecting an external LCD. LCDs are by their very nature digital displays, so if you use a VGA connection you're going to see some fuzziness. That has absolutely nothing to do with the relative power of the GPU.
The only real graphical problems that you'll run into in OS X happen when you have too little VRAM. The integrated graphics are very underpowered, much slower than the Radeon 9550 that the iBook had, but at least you get 64 MB of VRAM (32 MB per display). That's very important to getting good performance even in everyday use.
Also, although I'm not sure of this, I think the MB's integrated graphics are sort of designed for 2D use. In 3D gaming, I wouldn't expect them to do any better than an ancient Radeon 7000 because of the severely limited memory bandwidth, but you'll probably get a smoother GUI experience from the GMA950 than you would with the Radeon 7000 (which happens to be the slowest possible GPU that supports Quartz Extreme). This also owes to the MacBook's processor, which is much faster than the one any machine using a Radeon 7000.
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