Some tall images (images taller than they are wide) over 800px in height uploaded in the new Compose screen appear pixelated.
Workarounds: Choose the "large" image size to insert the image at the largest possible size that will not appear pixelated. Or resize tall images to be no more than 800px high in an external image editor.
Resolved 26-June-2008. Note that you should no longer have to use the Workaround noted above.