try increasing the thumbnail size or disabling the thumbnail... if large images are annoying for you then keep the attachment size small... or either try incresing the thumbnail quality

Aware of any mods that can set the thumbnail size per attachment type?

As I already said, all thumbnails will be *.jpg, as system automatically creates a *.jpg thumbnail from a *.png or *.gif image. Which means you'll have to disable thumbnails for *.png and *.gif via Attachment Options in your Admin Panel.

Frosty...I thought before you said that vBulletin doesn't convert *.png and *.gif files to *.jpg?

Turning thumbnails off for png's is one option however I make use of both thumbnails and full size attachments on my forum so I'm looking into more alternatives. I'm sure that for me, there would be some sort of negative consequence with other parts of my site if I don't have a thumbnail to display.

It doesn't convert images that you upload. But if you decide to have thumbnails for them, it creates a thumbnail which is a JPG!