I am sorry, I have not experienced this issue. I have the clearest picture on the block. I have not even done any tuning or adjusting. Maybe change the picture the picture adjustment to "Dynamic". Just a guess. Sorry I can not help more....Tim
When I was checking out this TV, I saw a review by a couple of people who apparently spent a fair amount of time documenting the video settings to minimize this issue. Please check all of the reviews in Amazon for the answer, and if it isn't there, do a search for external reviews. I altered my own settings a bit and don't have the problem. NOTE: One of the Amazon reviews I used is titled "Sometimes...Not BEING a Smart TV... is The SMART TV!, June 2, 2012 ."
I have noticed no such problem, close to or far from the unit. The picture, whether faces or otherwise, is remarkable. Anyway, who gets up close to a 40" LED? According to the General Help Info for LED sizes on Amazon, the ideal distance for a 40" LED is about 7 feet from the screen. Your question reminds me of the old joke: A patient goes to the Doctor. The Doctor says: "Hello, how may I help you today?" The patient says: "Doc, it hurts when I do this." The Doctor says: "Well then, don't do that! Okay, that will be $75. Please pay the secretary on the way out." So, if you are changing the individual fine tuning settings, as opposed to the presets, stop. If the presets like "Movie" or "Dynamic" are causing that phenomenon, then you could possibly have a defective set, but I doubt it. If the set is defective, it would be more than just faces that would not appear correct, IMHO. Good luck.