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Quick question; Why do the pictures that are synced onto AppleTV so blurry on an HD TV?

My situation: My inlaws have 10.4 on an iMac, and the AppleTV connected to 1080i HD TV. We just loaded 7 years worth of pictures onto iPhoto and I tried to sync that to the AppleTV... The pictures are on the AppleTV, but when we go to view them on the TV they are really blurry. I'm thinking that the pictures get compressed before the transfer to the AppleTV, and loose a lot of resolution... Is there any way to preserve the image quality?

I have poked around inside the preferences, but haven't found anything inside iTunes. Right now the inlaws are playing with the AppleTV and I haven't had a chance to poke around with the settings on that device...

THANKS!