Xcode 4 makes it easier to submit.
As you have discovered, all you have to do is archive.
The blurry icon is expected behavior as it is a bigger square than on the device.
After you archive you will have the option to submit
to the app store, just make sure you are using the right provisioning profile and you will be good to go.
It is useful to know xcode 4 also allows you to do the validation test before submitting so when you submit you are certain there are no problems.
Hope it helps!
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