Oh WOW! That was the original pic?! Your cutting is VERY good LOL. xDDD You should have seen some of mine when I first started hahaha... -facepalm-
Nope! Smudging at a very low % will get rid of the pixels, and retain the picture (unlike if you smudged at 80% or something, that will go crazy. =_=). Just smudge along with the flow, and it'll turn out well. xD