I heard that a lot with this plugin.
You need to adjust the image size in the settings at
woocommerce > settings > catalog > image options
according to the size your theme sizes them (!), not the other way round.
Look here for the comment of Laura:
http://www.thedesignguys.co.uk/woocommerce-image-blurring-problem.
Don't forget to install the "Resize Thumbnails" plugin and run it.