I haven’t seen this discussed anywhere else. My niece has an iPod touch, and I sent her some photos by email. They looked fuzzy on the iPod. She specifically saved them into her photo browser on the touch. I discovered that if I sent a photo that was already scaled to fit within 480 x 320, that it would look dramatically better. Apparently, the iPod will scale down larger photos, but not very cleanly. The photos I sent weren’t a lot bigger than that, but I found if they were any bigger at all, they would look bad.
That size isn’t one of the built-in options for mailing from iPhoto, so I had to use a custom size. Anyway the pre-scaled photos look great.
I would think this applies to the iPhone also, but I haven’t tried it.
-Jamie

I just acquired an IPod touch and was able to transfer any desired photos from my iphoto to the itouch. They all look super…much better than a regular phone. Perhaps you should get your niece to put her pictures in iphoto? My i Pod Itouch pics are great.
-suzanne
I have the same problem with as you Jaime. I tried iPhoto and still they are terrible.
Maori Boy