Yes, that is the setting you need to change. However, after you change it, nothing will happen. Only thumbnails from this point on will be created using this new resolution. So, what you need to do is change that setting, and then go to list of images, select one “blurry” thumbnail and then select “Refresh thumbnails” from the menu. This will recreate this particular thumbnail. If you are satisfied with resolution, then you can go to Settings//Cache and click on “Refresh thumbnails cache” which will remove all created thumbnails.
Let me know if that helps.