It is grainy, yes, but it doesn't look horrible. However, there's no denying that ZC is capable of much higher image quality than this. You would probably do well to just go in and manually paint over some of the color blocks in this image, because Wind Waker's cel-shaded style ensures that large areas will use the same color. For instance, the right side of Link's tunic is speckled, when the shadow should be mostly a single color.
Y'know, any time an image editor is used to resize and/or reduce the colors of an image to fit into ZC, it's probably going to be noticeably imperfect. I generally find myself giving ratings no higher than 3 unless the user has done some manual editing of some sort. In a way it makes sense, because resizing and reducing colors alone doesn't take that much work anyway.
