Converting mobi to epub distorts jpeg files

I created a .mobi file using kindlegen. I can load the mobi into a kindle reader and the images (.jpeg) are not distorted. They appear to have the original resolution. When I using Calibre (latest version as of today), I kept the default options and the images look terrible in the epub file. Is there an option to prevent downsizing when converting to epub? Why can't the conversion process simply preserve what is already there?

I've attached screenshots of the two versions displaying the same image.

Thanks for your help. Is my only option to try to hack into the resulting epub file and replace the images?

Attached Thumbnails