What is the width and height of the thumbnail preview live wallpaper in pixels? This is definitely more than 72x72 that I know.
150 x 150 at 72dpi creates a very clear preview image (anyway on DroidX).
I did a test by taking a screenshot of the wallpaper in the emulator. It shows a large DPI version and has exactly 75x75 pixels. Since 75x2 = 150, you could save yourself a few pixels;)