I have a WDTV Live (not Hub) and I see exactly the same issue with very poor Photo quality rendering : jagged edges and overall.
Most of my photos are in the 3mp to 10mp range, and TV is a FullHD 1080p.
In my case rendering was quite good as long as I was on 1.02.21 firmware. Few days ago I upgraded to 1.04.22_V (plenty of new interesting features btw) and now Photo rendering is even worse than described in this thread it seems 
Can you confirm if the Live has the same known issue and if a fixed firmware will also be delivered ?
Thanks!
