Add contacts to the favourites tab and press the Menu softkey, select "Change Picture" and pick the contact picture you want for that contact. For me, the picture looks hi-res like it should. Even when flashing a new ROM and resyncing with Outlook restores the higher detail pictures.
I know if you have a lot of contacts, it would be annoying to continually put in new contacts to the Favourites to change their pictures, but this was the only way I found to have clear contact pictures.
Hope this helps.
