Icons blurry if not at 500x500 or bigger

When I was still using Snowleopard I had changed some of my icons. I didn't and still don't use any programs such as Candybar to do this.

I would save and image, open it up in preview, go to edit > select all then edit > copy, I would then find the application, folder, ect. that I wanted to replace, right click on it and select get info, in the upper left corner of the info there is an icon that I would right click and paste the copied image over. This would change the icon. I had no problems with this method and as long as the icon image was bigger than about 100x100 the icon was sharp.

However since updating the Lion (I'm not sure if this is immedietly after since I didn't try to change an icon for a while) I have noticed, using the same method, that if the icon image is not larger than 500x500 (must be 500 in either width or hight but not necessarily both) the icon is blurry. The blurriness is the same regardless of the size of the image, such as an image that is 300x300 is just as blurry as an image that is 400x400. I have tried different images and all of them that are smaller than 500x500 are blurry. However if I copy an icon in the info that I had changed previous to the problem and change another icon or itself with it, the icon is sharp even if it is smaller than 500x500. Only the icons that I change now come out blurry.

I was wondering what the problem is and how I can fix it. I really enjoy personalizing my icons but 500x500 icon are far and few between.

- Thanks