but I don't think the pic that you referenced has a 'stretched' letter, but I may be wrong.
The 'O' looks like an enlarged circle put into the space where the actual font 'O' would be.
Please correct me if I am wrong. I have not had any problems with my letters looking grainy or anything when I have stretched them, but of course I did not make them 3/4 of the LO either...lol.
I use PS all the time, but don't think I make any of my font letters unusually huge...at least not YET. If I come across that delimia, I will let you know.
Sorry I couldn't help more.

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Laura
Amanda-16, Heather-14, Chelsea-12, Logan-9, Ian-7