This is a borderline bug in my opinion.
At the moment there is no way for users to define the quality of automatically generated image thumbnails, which isn't so much of a problem for default thumbnails (indeed, it's optimised for such a size) but is terrible for users who modify the size themselves using the height/width options introduced with WordPress 2.5.
Smaller thumbnails need higher quality or the compression destroys them, with the effects becoming worse as they get smaller. The opposite is true for larger thumbnails (some people use 640x480+ for thumbnails, especially in the case of photo/gallery sites), which need *less* quality or the file size becomes too big.