WHILE DSNDING ON A PUBLISHED STAR RTE; A B737 FLC'S ALT IS CHALLENGED BY ATC. THE CTLR OBSERVES AN ALT THAT APPEARS IN CONFLICT WITH A DHC8; BELOW THE B737. AFTER LNDG; IN CONFERENCE WITH THE TRACON SUPVR; THE B737 FLC'S ALT WAS OBSERVED 500 FT LOW. A LATER CALL FROM THE FLC'S CHIEF PLT CLARIFIES THAT THE TRACON RADAR WAS CONFIRMED TO HAVE MALFUNCTIONED. PIC IS CONCERNED WITH COMPANY DELAY AND COCKPIT DISTRS.

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ON CHINS 2 ARR; CLRED TO CROSS 'SNOMY' AT 16000 FT BY CTR. SWITCHED TO SEA APCH AND CLRED TO DSND TO 11000 FT. VNAV DISENGAGED (FO PF) FLT LEVEL CHANGE AND 11000 FT SET WITH AUTOPLT ENGAGED. TOLD TO LOOK FOR TFC BELOW 12 O'CLOCK; 10000 FT DHC8. AT APPROX 11600 FT; TA ON TCASII AND THE DHC8 WAS SPOTTED AT 12 O'CLOCK; 1 MI. AT 11300 FT; I RPTED 'TFC IN SIGHT' AND CTLR REPLIED 'CLB TO 11000 FT.' THE CTLR SOUNDED UPSET/CONFUSED. I REPLIED AS ACFT WENT THROUGH 11000 FT; 'WE ARE LEVELING AT 11000 FT.' THE CTLR RESPONDED WITH A NEW ALTIMETER SETTING OF 30.11; WHICH WE SET FROM 30.12. FLEW ARR INTO SEA -- NON EVENT. ON GND; TOLD TO CALL ATC. ATC SUPVR SAID WE WERE AT 10500 FT ON RADAR. I TOLD HIM WE WEREN'T AND THAT BOTH ACFT WOULD HAVE HAD AN RA RESULTING IN EVASIVE ACTION BY BOTH ACFT IF WE HAD SUNK DOWN WITHIN 500 FT OF OTHER ACFT. I HAD COCKPIT VOICE RECORDER/FLT DATA RECORDER DATA REMOVED/SAVED AS EVIDENCE. LATER THAT DAY; ATC CALLED MY BOSS AND SAID RADAR WAS IN ERROR DUE TO ALIGNMENT OF ACFT WITH RADAR. THE PRESENCE OF ACFT AT THIS POS ON STAR IS COMMON AND THIS ERROR MUST BE FIXED! THIS CAUSED THE DELAY OF 2 FLTS AND THE COST OF BORROWING A COCKPIT VOICE RECORDER/FLT DATA RECORDER FROM ANOTHER AIRLINES. THIS ALSO CAUSED A HIGH LEVEL OF STRESS WITH THE FLC. CALLBACK CONVERSATION WITH TRACON SPECIALIST REVEALED THE FOLLOWING INFO: ACKNOWLEDGED OCCASIONAL GARBLED XPONDER DATA IS PROCESSED AND DISPLAYED TO THE CTLR. THIS ERRONEOUS DATA IS USUALLY CLRED WITHIN A FEW SECONDS; BUT THERE CAN BE OTHER ANOMALIES WHICH CAN CONFUSE THE RADAR PROCESSOR. THIS CONFLICT ALERT DATA MUST BE REVIEWED FOR VALIDITY. THE FACILITY HAS PROCS FOR RAPID REVIEW. WHEN THE DATA IS REVIEWED AND VALIDATED; THE USER IS NOTIFIED AS SOON AS PRACTICABLE. THE SPECIALIST STATED THAT SEA TRACON'S ASR 9 RADAR IS USUALLY VERY STABLE. THE REASON FOR GARBLED DATA IS NOT COMPLETELY KNOWN.