Robert,
Attached is the comparison image when viewing the map service in the Flex Viewer 3.0 vs. viewing in the map service Javascript API. The only way I can get the tiled map service to draw in the Flex viewer is to set the layer type to "dynamic" and that is when the image looks degraded. If I switch to "titled" layer type the service does not render at ALL!
To test the map service will render properly I made a simple Flex api as I mentioned in my previous reply and it draws just fine. This leads me to believe that there is some conflict within the Flex viewer. My $0.02.