I think the image size is too small, so there aren't enough pixels when you expand the image to trace over it.
Then again, in your picture, it says 1600 x 1200. Is the picture really that big? If it is, I don't know what the problem is.
yes i m having same effects with all the pictures i tried all sizes picture . i had this problem in catia v5 r18 i thought it would be r 18 so i uninstalled r18 n installed v5r20 .but i m having same problem