Thank you for your testing effort.
Can you specify what you are trying to do and the exact behavior you are seeing (screenshots)? If you use a managed raster catalog, then yes, your data will be loaded into the raster catalog GDB which by default uses a lossless compression. For testing purposes I would try an unmanaged raster catalog which only references your original data that is on disk. This way you can see if the "wash out" display is caused by loading your data into a GDB or not.
Can you provide more information specifically what you want to accomplish with the raster catalog. You mention 'manipulating' it, but the catalog is not designed to manipulate a lot of imagery at once.
Since you are testing 9.4 beta, you can also try to use a mosaic dataset to see if you have similar issues.
Let me know if this helps.