To me, the picture quality was fine on FroYo and no different on GB.
But, I also take into consideration that it IS a cellphone, not a digital camera. I have a 6 year old (Also 5MP) digital camera that will blow it away. WHY? Mechanical Auto-Focus on the lense (not software) and it was DESIGNED for taking pictures... not a secondary function like it is on phones.
I think too many people expect too much out of those tiny little, software controlled, lenses on the phones. The only phone I ever had that took GREAT pictures, my BlackBerry 9700. It too was 5MP, but it has a mechanical Autofocus. You could even see the lens move in there.
I love the camera on the phone, and it's great when I'm out and need a quick shot for something. But, if I want a quality shot, or it's an important picture, I'm always going to pull out my digital camera.