Why are my contact pictures blurry and how to fix it?
This is due to a limitation of GMail more than anything. GMail only supports contact icons with a resolution of 64×64, while ICS supports up to 256×256. When you give a contact an icon, Android uploads that new contact icon to GMail... which then promptly downscales it. ...And then Android thinks you changed it to the low-res icon and uses that instead of the nice and pretty one you picked out.