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it seemed to have turned into a poor version of Instagram
You're right, I forgot about that. Though you can get around that by opting out of the beta, which I did. But I guess it's a matter of time before that's no longer an option.
Small as in resolution?
Yep, probably a measure taken by the site to reduce file sizes.
Are the pictures also that small when you upload them? I want to see this baby in HD!
If you're looking for an alternative, I can recommend http://www.imgur.com.