PAL N64 problems with S-VIdeo
Solution 1:
It looks like you need to change your TV from progressive scan to interlaced (or vice versa as applicable).
I've seen flickering like this from this problem before, and here's why it happens:
There are 2 ways to feed data to a TV. Progressive scanning sends it one line at a time, 1st, 2nd, 3rd, and so on. Interlaced scanning sends all the odd lines, then all the even lines, 1st, 3rd, 5th, ..., 2nd, 4th, 6th, and so on.
If you have your TV in the wrong mode it could cause this.
Solution 2:
On my HDTV I set the output to 'SCART-S', this means the s-video cable can run through my scart adapter and into my tv via scart. The problem you have is that your output is set to SCART and not SCART-S. Once you've changed this, it should fix the rainbow effect. If you don't have this option on your TV however, then you may have to find a TV that does.