IF you're not substantially changing the size of the image, it shouldn't pixilate. However, photoshop uses an image in virtual memory while the transform is taking place, in order to use less actual memory, so your image will appear pixilated until you actually apply the transform. To use transform most effectively, however, it's always better to start out with an image that's larger than it will be once transformed. For example, if you want to transform text, and you need the text to be, say, 76pts once the transform is applied, apply the text at, say, 200 pts, and use the transform to shrink it down. If you're compositing a picture, and need to transform it, start out with a picture double the size you need. This has definite advantages in that downsizing always makes images look sharper.

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