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I think a user recently suggested a new feature, which was to allow us to save images in the native resolution...so before being resized for transmit. I second that suggestion...and I'm pretty sure you will second it as well.
The resolution restriction is only on Edge/3G, right?
I was about to post a thread about this same issue, and this explains why my images are so dang blurry!
If the images are "blurry" you can try sliding the image quality / framerate slider to Better Image Quality instead of Better Frame Rate. That will improve the JPEG compression quality of the images.