Simple. And not.
This is a case where a picture file has been expanded beyond the attributes originally created when it was made. If you take a pic file and enlarge it from say, 120 pixels by 120 pixels, to 720 by 720, then each individual pixel will be enlarged as well. You are seeing individual pixels in the larger version, hence the "fuzziness". No way around that.
Not a bug.
EDIT: If, as you say, minimizing the picture should result in a different outcome, then the file itself is failing to retain the pixel information as it should, hence the distortion you see.
It is possible to confirm this by taking any picture using Paint and enlarging it.
