This question has come in through various channels in recent years, so I thought I'd do a write up on a quick fix. If you've ever wondered why your brushes look “pixelated,” there's a perfectly good explanation. Photoshop isn't broken, you aren't missing a setting, and you probably got here because you like keyboard shortcuts.
You probably think you're crazy because you hit “B,” the keyboard shortcut for the Brush tool, and all your brushes still look like crap. This is probably because your not actually selecting the brush tool. The keyboard shortcut for the Pencil tool is also, you guessed it, “B.” When the pencil tool is selected, all the brushes will appear pixelated. Take a look at your tools and make sure you actually have the Brush tool selected. Hold down on the Pencil tool to select the Brush tool.
That's it! You were just a victim of your own productivity (Evil Twin Keyboard Shortcuts). You can always change the keyboard shortcut for the Pencil tool to prevent future attacks ðŸ™‚