My device is a Nexus 7 (2012 edition), running Android 4.3.
I downloaded some nice wallpapers from http://vathanx.deviantart.com/art/Impulso-114624053 and placed them in the SD card. Resolutions are 1920x1200 or 1600x1200.
To set the wallpaper I long-click the background, select Gallery, then the folder & the image & keep the cropping as suggested. However, once this is set, the image is distorted and not smooth. Besides, it seems some color information has been lost as well and the gradients are not smooth anymore.
Screenshot after adding the image (click image for larger variant)
Is there any App which handles this properly? I can accept a little blurriness and reduced colors, but the current result is simply too low quality.