I have been working on a new server, that is running PHP 4.4.4. The scripts that I am having problems with have been fine on another server which is running 4.3.11.

The GD libs which processes the image, makes the images blurred. This indicates that the version is pre 2. But according to php it is older than 2.

Does anyone know of any issues with this version of php, as my host seems to believe everything is OK

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Not sure it sounds like a version issue. When you say the image is blurred, does it look like the image is loading properly?

The images are the same, only the modified images are very pixelated and blurred.

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It could be a resizing problem or just a problem with how GD is handling the image format etc. Se if anything here halps you.
PHP.net

If not, I would research some possible resize "hacks" with PHP or HTML.