[iRetouch, Magic Touch] Why does a saved image look blurred?

There is a bug in iPhone OS 2.2 which affects images with 800x600 size. If you have iPhone OS 2.2, update it to the latest vesion (3.1). Otherwise you need to make sure that the output image size is not set to 800x600 when saving the edited image. Each time before saving an image, go to Tools->Misc and set output size either to 640x480 or 1024x768.