[ BLUR IS YOUR FRIEND ]
You may have already figured this out. Or you may not have. But blur is one of the best tools you can use to enhance image quality. YES, enhance, especially if you are working with a "cut-out" image, or an image that has been taken out of its original background and stuck on top of another. Let us take the following images for example.

Exhibit A      Exhibit B

The original background of the base image was pink and I deleted it using the eraser (er, duh?). No matter WHAT method of extraction you use, unless you are willing to spend more than six hours erasing pink squares pixel by tiny pixel -- and really, even then, you're going to get a picture with rough, jagged edges like that on Exhibit A (left image). In some cases, you could overlook it, but if you're working with LARGE pictures, the jaggedness will become more obvious. So what I do is duplicate the base image so I have Layer 1 (the original) and Layer 1 copy (the, uh, copy).

Then you blur one of them -- the layer at the bottom, preferably, so you have a blurred copy at the bottom and an unblurred copy floating on top of it. You can use Filter > Blur > Blur/Blur More/Gaussian Blur/Motion Blur, though Gaussian Blur is best so you can adjust how much blur you want. Most of the time, it's best to use just the minimum blur needed to get rid of the jaggedness but you may want to blur more depending on the image and the nature/mood of the layout/wallpaper you are creating. Then you can apply any of the score or so Blending Options on the unblurred layer. Overlay or Hard Light are good since they enhance color. So you've now killed two birds with one stone: You removed jaggedness, and you just made your image less dull and flat-looking. You can duplicate the top layer as often as you like and adjust Blending Options for each layer to get the colors defined the way you want. COLOR IS EVERYTHING. I have seen plenty of wallpapers and layouts that use a beautiful image and a lovely background but the things comes out looking TOO FLAT because the colors for the base image are dull. For really REALLY fine edges, like those found often around the HAIR, you can use the Blur TOOL (not filter) and a small brush size.