Help with quality reductions while recoloring {SOLVED}

Hello! I'm trying to make a custom poster, pretty easy. 
Except for some reason when I import the picture back into S4S the quality looks horrible. 


Heres the picture in photoshop:


Here is how the picture looks when I just view it on my computer:



And then how it looks in S4S and in game:



I'm using Photoshop CS2 and saving these as JPEGs an PNGs, they look the same. I even downloaded the plugin for DDS and it doesn't look any better. 
I can see the picture isn't being saved at a lower quality, its happening on importing to S4S. 

Any help would be greatly appreciated!!