A troll must've mucked about with my computer during the night. I did not see this issue yesterday. It seems like only colored text is affected by this blurry madness.
What is going on and how do I fix this?
I'm using Windows 8.1.
I can't see a problem with your screenshot.
By blowing up the image in paint, you can see that there is a very distinct line between the dark blue background and the red text. If this is blurry to you, it may be an issue with your monitor calibration rather than the actual PowerShell config.
I would suggest checking your sharpness or pixel clock settings on your monitor.
Additionally, it may have been an update to the git client you are using, as the default for red text in PowerShell is to put it on a black background.
It looks like git is just using a bad choice of color. It's using "dark red" instead of "red". There are two things you could try: