Lilybiri, the quality of image was distorted even when published as SCORM.
I created a new template as the earlier template had several other issues as well. I have selected the 'Retain Slide Quality Settings' option and it seems to work well. Now when I change the slide settings to high or optimized, they are working fine.
I am wondering why this happened only with the characters and not other images in the project.
Thanks a ton for your answers Lilybiri and Rodward, the issue seems to have been resolved.
