I have tested out the dithering options in CM7's settings and it does not help. Does anyone know if it might be specific to CM7 since it occurs on both Iyokan and MIUI. I've tried a few screenshot apps and other gallery apps to apply it in order to slim down the possible causes.
A screenshot I took as an example us attached.
Edit: Seems XDA reduced the quality even further.
Direct link can be found at cl(dot)ly/JfFb/screenshot-1348486699116.png