I think I figured this out.
The compression settings were OK, but I had my thumbnail dimensions set to 240x240px in the Gallery settings and it seems that those were being enlarged to whatever the system shows thumbs at when viewing a gallery.
I changed the dimensions to 400x400px and they look a lot better now. That said, I think there is a bit of a bug in the ACP when doing this. I have noticed since the last update that I have to change settings twice (everywhere) before they reflect as changed in ACP. Also, when you change one field in the thumbnails dimensions it wants to rebuild the thumbs before you can change the second field.
FZ's post in Gallery Thumbnails Fuzzy was marked as the answer