The default settings and graphic package for Gallery3 will make any real photographer shudder at the look of the images, by default they are way too compressed and pixelated, a couple of things to get them looking better, and for me it was trial and error until I was happy with the quality and file sizes!
Firstly get hold of ImageMagick version 6.xx and get it installed! its a better processor.
Secondly, get into the advanced settings tab and tweak the following settings, these values are what I have ended up with – after about 5 iterations!
gallery image_quality 95
gallery image_sharpen 16