Like millions of other sheeple, today I upgraded to , graciously provided by our benevolent overlords at Apple.
One problem I noticed is that after the upgrade, when I tried setting the wallpaper, all of the pictures I had had turned into their thumbnails, i.e., they were small grainy pictures. I could blow them up to full-screen size, but of course they lost a lot of resolution and generally looked like crap.
The fix turned out to be pretty easy: in iTunes→your iPod→Photos, uncheck the box that says “Sync Photos from”, and apply to delete all photos. Then check the box again and reapply. Evidently the pictures are still stored on the desktop, in glorious full resolution and everything. This reuploads them to the iPod.