No, it isn't the way it's always been. Perhaps I haven't explained my usage well, or you didn't see my first post.
I tend to do a LOT of music digitizing, and organizing. One practice I developed a long time ago (during Lion or so) was replacing the folder icons of my music folders with the album art - sort of making them little albums so to speak. In the past, you could take just about any image file, no matter what size it was, or the image proportions, and copy and paste it into the folder icon place, as I showed above. And the system would resize it, and maintain the proportions, no matter how non-square it was, and it worked really well - the results were non-blurry, and you could make out what the image was, to some extent at least.
In mojave, that seems to be broken - it has to be a minimum size, and perfectly square, or the image gets blurred. This method worked fine in high sierra by the way.