Definitely it's got twice the resolution of the iphone & the PPI is pretty high.
I have found this.
http://forum.xda-developers.com/show...ghlight=hdwall
It fixes the problem, unfortunately you have to create cabs to make it work. a PITA. I would rather just find out why when selecting a high resolution wallpaper it turns it into a grainy mess. I am hoping one of the experts on here can chime in with a fix, or at least an explanation.