I have noticed some people complaining about spending hours trying to tweak the settings for thumbnails, risking altering settings in the wp files. Why not put that time into resizing images on your machine into thumbnails and then uploading? A program like faststone does this masterfully. Doing so results in a better looking image than the wp-crunched thumbnail and possibly over 80% of the reduction of the size of the thumbnail.
I created a test page showing the difference in image quality for crunched full-size, crunched medium-size, crunched thumbnail, and thumbnail created on my local machine (it's actually in reverse order on the page). Putting your page through web optimization analyzer will show you the major loading differences between the four methods.
It will take you some time to do it but if you have a ton of thumbnails and a ton of traffic on your blog, it will be worth it to make the thumbnail images on your local machine first and then upload them linking to the full-size image.