The default image has a size associated with it (width: 171, height: 29). You need to change these to match your image which is 400 pixels wide. The browser is simply resizing your image to match the dimensions. Edit head.tpl and change the dimensions to match your logo size. I'd shrink your logo down a bit as well, or it will take up too much room up top.
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Padraic Ryan
Ryan Design Studio
Professional E-Commerce Development
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