To all of you having this issue...
How are you getting the pictures you use for your contacts? Do you use the one linked from FaceBook? Do you download pictures from FaceBook, Twitter or other means? Are you using pictures you took on your phone or another camera that you transferred to your phone?
The reason I ask is simple...resolution and compression. The DX has a very high resolution as opposed to some older phones, and if you are using the same pictures from the last phone, then there is a chance the display resolution has changed between the phones, causing the DX to increase the pictures size to accommodate the Contact Icons size...making it blurry.
Heres what I have done, and so far it works great on my DX using the Launcher Pro Plus and Contact Shortcuts...All of my Contact Pictures are stored on my SD card in a folder labeled Contact Pix. I have 3 ways that I snag pix for this use...I take them with my camera/phone, I snag them from FaceBook and edit them to my liking, and I use pre-existing pictures from my PC.
Whatever means you use to get your pics, make sure when you are setting them that you actually use the "crop" feature...4 arrows that allow you to resize or crop the picture...and also make sure you are using good quality pictures...