Since the files look fine as JPG or PNG, then terrible after compression, the compression settings are the problem. Unfortunately I can’t help there, as I don’t use Flash.
The images showing up as the wrong size I know about though — in some filetypes, pIllusion 3.0.1a for Windows is not setting the DPI values for the files, so it’s using “bad” values. What you need to do is either write TGA files (which don’t store the DPI info), and if Flash can’t use those, then you’ll have to do some intermediate step (with Photoshop maybe?) to set the DPI values correctly.
This problem has been fixed in the upcoming 3.0.2 update.
Note that this DPI issue has nothing to do with the quality issue, which is completely a compression issue (in Flash).
(We hope to release the 3.0.2 update before the end of July, and are still looking for more beta testers.)
Alan.
http://www.wondertouch.com