I’m trying to work out from your screenshot whether it’s your whole interface that’s affected or just the character portrait?
If the latter, I think the resolution of that is fixed at character creation, and doesn’t improve even if you turn settings up later.
At least, that was my experience when using the workaround to create a custom party, for which I had to turn settings right down to allow my PC to cope with running four instances of the game. I turned settings back up after creating my party, but they are all stuck with blocky portraits.
