In some weird patch Blizzard changed the screenshot format to .jpg and lowered the quality. It really looks like crap, but there is a way to change it.
To change the quality or the output format back to tga, write the following in your Config.wtf (open it with WordPad (Thanks for Bersekers to pointing this out)) (found in World of Warcraft -> WTF):
SET screenshotFormat "tga" SET screenshotQuality "10"
EDIT: If you want to edit the pictures, GIMP is a great and free tool: GIMP - Downloads
Difference between quality 1 and 10 can only be seen if youre using jpg - however, quality 1 tgp is still better than jpg
Screenshot is from 1920x1200, 24 bit colors and 24 bit depth