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I'm not an expert, but I know that if you are using a picture that fits into your background without having to resize it to fit, it will keep it's quality. If you are taking a small picture and blowing it up, you will loose pixels and distort the photo. When I make my siggies I start out with a blank page at the size of 1000x800 pixels, this will give me enough room to make my siggy and have some left over space to be able to crop it, and I won't have to do any re-sizing when I am done. I usually like to make my siggies about 600x400 pixels.
So basically, there really is not much you can do with a small picture to help it, but with larger pictures you can usually scale them down without losing quality.
I'm sorry, I don't know if that was helpful or not. But, if it's not then hopefully someone else can give you better advice