TG-1 Horrible picture quality

I just purchased a TG-1 iHS and I am horrified by the picture quality.

When viewing at 1:1 on my monitor (Dell IPS panel) all detail is blurred or "mottled" like there was an artistic filter put on it.

When looking at other TG-1 sample photos, the details are much more clear and defined.

Even my 5-year old Nikon Coolpix L18 at 8M pixels is WAY more clear in the details.

Here is an example:

View this at 100% and look at the details - faces, bench trees.

If you enlarge to 100% (1:1) and look at girls' faces they are blurry.  The people on the bench are really blurry like someone tried to erase their faces.  The bench and roof looks like I am looking through a textured piece of glass.

All my pictures are like this.

Is my camera defective or is this the quality I should expect from this camera?

My settings are:

• iAuto (or P)
• 12M pixels
• ISO auto
• WB auto
• +- 0.0
• Compression Fine
• Shadow Adjust Off
• AF Mode Face/iESP
• ESP ESP
• Digital Zoom Off
• Image Stabilizer On

Thank you!