How to keep image quality after inserting into Storyline

Referencing a comment I made on another thread,  I’m seeing image degradation as well.  But it might not be for the reason I was expecting.

As we didn’’t have the original assets used in this particular project and needed to do some minor Adobe Photoshop retouching (to remove name badges and replace with embroidered names), I used the trick here to recover JPEG images from the .story file.  I retouched those and replaced them in the project.  It looked fine when first dropped in there, but upon previewing the project yesterday, there was obvious blurring in the image.

I decided to “take a look under the hood” and found something interesting—there  were a number of image assets which had been converted to Adobe Flash (SWF) files.  In several cases, the images were quite small and the SWF version was actually larger than the original file!  With the attached image, you can see what the change to SWF introduced.  The left image is the original recovered JPEG, and the right image is the SWF version found in the newest version.  (If it’s not obvious, compare the light from the windows hitting the woman’s hair, and the fine lines on her forehead.)

I could understand rendering Storyline’s assorted animations and transitions (such as image cropping, zoom regions, etcetera) as SWF to speed execution and keep the filesize down, but some of these were static objects that had no such formatting applied.  I was wondering on the other thread if SL2 was “recycling” the images, and using lossy compression on them with each new publish or save.  Perhaps not, but the encoding as SWF—haven’t a guess there.