It seems that WLM automatically shrinks any image to a resolution with 80 pixels height, most likely 400x80, which should be like the default size for 'windowed' mode.
Any image used as scene, regardless of it's original size is larger or smaller than the 'default windowed size' scene, is cropped by the center and then resized or simply enlarged if smaller.
As you can see, even the scenes that comes by default with WLM also look pixelated if the window's size is changed or maximized.
I recommend using images with little detail if you don't want them to look too pixelated. Take the default blue one for instance, one can't notice the pixelation if WLM is maximized or windowed due to it's lack of detail. Or you can try what MIKE did, so far it's the best that it can look.
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