Copied and Transferred Photos Pixelate in CS7

In upgrading to CS7 I've noticed a few changes. First, the one that bugs me most is when I use a high quality image from stock, images I've used before, and I cut and transfer them to another image, they pixelate. I never had this problem with the other version. I also can't seem to locate my Preferences to try and remedy this issue. Any help is appreciated.

Thanks!