Floppypenguin,

In addition to the above "antialias on" option, here are a few other ideas that may help.

1. Start with an image 1:1 ratio of pixels to stitches.  This is one of the most important item that affects the output of the program. For example, if your final stitched item will be 100 stitches across, it would be best to start with an image that's 100 pixels across.

2. Try adjusting the brightness and/or contrast just a little (up or down).

3. By limiting the number of colors you can make the program use fewer similar colors which can sometimes smooth out skin tones.

4. By manually selecting the colors you want to work with, you can often get better skin tones if you only select one or two colors for the skin color.  In other words, if you choose one color of yarn/floss that's close to their skin tones, the program will only use this color and should not insert other colors.

5. Try adjusting the "smoothness" setting in section 8 to a slightly higher number.

6. Try the 3 "stray pixel cleanup" options in section 8.

As mentioned previously:
7. An option that kind of "averages" the pixels and smooths things out is if you turn on the "antialias" option in section 8 by checking the box next to "antialias on".

Note: You're probably not going to get a great pattern if you try all of the above at the same time so you may want to try one or two at a time.

Hope that helps!