Let's get one thing clear, the contact resolution is still too damn low, even after the "fix" for 4.1 where the pictures were slightly enlarged. As of now, there's only one workaround if you want crisp contact pictures.
Create a folder with high resolution contact pictures. It's a great idea to backup this folder to Dropbox or similar, you don't want to have to collect these pictures again.
Download HD Contacts (free) from Google Play. This app will let you specify one "HD" (high resolution) contact picture for each contact. You can backup the database of contacts/apps from here, and you can redo all contact pictures in a batch when needed (like after installing a new ROM).
Until this is fixed server side and Google allows the sync of shiny high resolution pictures, all we can discuss is workarounds, and this is the one I find to work the best.