A number of Snow Leopard users have been complaining of blurry and pixelated icons showing up in the Finder. A growing thread on the Apple discussion boards outlines this issue, where instead of the large and crisp icons that are so prominent in OS X, the system shows grainy and low-resolution versions of them, regardless of the icon size being used.
This is one of those issues that makes me miss the old "Rebuild Desktop" feature that would clear up many icon problems in the Classic Finder.
OS X icon files are actually comprised of several files in one, each which represents a different version of the icon from low resolution to high resolution. This is so the system will not always load the high-resolution versions if the icon size does not call for it.
Most OS X Applications that Apple distributes will come with a number of icon sizes: 512x512, 256x256, 128x128, 32x32, and a small 16x16. You can see this if you get information on an application, highlight the icon, copy it, and then paste it in Preview. It seems the bug people are experiencing is where either the 32x32 or 16x16 version of the icon is being used instead of a higher resolution one, regardless of the icon size being used. This problem also seems to be intermittent, where sometimes it will go away, only to return a few days later.
My initial suspicion would be that this is from a DS_Store issue, and since DS_Store file behavior can be inherited in odd ways, you might try using a utility to remove all DS_Store files from your system instead of tackling the one in the affected folders.
Remove system and user caches
Additionally, you can try using a system maintenance tool to remove all user and system caches. This can be done with a utility like OnyX, and I would recommend tackling the following system caches:
dyld's shared cache
All "System" cleaning routines
All "User" cleaning routines
After removing the caches, restart the computer.
Finder preference corruption?
Additionally, removing the Finder's preference file may also help, since icon rendering is a function of the Finder. The preference file is called "com.apple.Finder.plist" and is located in the /username/Library/Preferences/ folder. Move this to the Desktop and restart the computer (or logout and log back in) and hopefully the Finder will load the icons properly again. Keep in mind that doing this will remove a few customizations of the the Finder, including sidebar additions and recent items, but that should be easy to set up again.