I sideload the AZW3 using Calibre, most of those are converted from EPUB and MOBI using Calibre. I have a few Amazon books but they don't have this issue (haven't tested many books anyway). I think the conversion tool of Calibre generates thumbnails from book covers with high compression.
I played with Kindlegen before; the output files do not even have thumbnails...
Thanks for the suggestion of ExactCoverThumbs, I will check if it overwrites the thumbs with better quality ones.
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