Windows 7's Photo Viewer is just about the worst feature of Windows 7. It has bugs, defects, poor results, etc., many of which have been reported by forum members in other threads. You are not alone in complaining.
Your solution is to use just about any other image browser/viewer program... either free or non-free. I myself use ACDSee (non-free) and many others use IrfanView (free), and have ZERO complaints.
But to be fair, zooming in on any image (high quality or not) is bound to eventually produce pixelization and other visual distortions. Obviously how far you can zoom before you see these artifacts depends on original size and resolution, and quality.