The thumbnail on a hub item's about page is not to the same scale as the thumbnail on the AGOL item, where the thumbnail is actually uploaded.
Best practices says to use minimum 600x400px for item thumbnails, as per https://www.esri.com/arcgis-blog/products/arcgis-online/data-management/put-your-best-thumbnail-forw...
However, the about page thumbnail is 451.14x300px, resulting in a stretched and blurry image.
How can this be rectified?
Take that image you are using for the AGOL item, bring it into a graphic editing program, preferably a higher end one like Adobe Photoshop. If you don't have a high-end graphic editor, you can try using paint. Resize the image to 600 px. Save it as new name then try it in the Hub.
I'd like to confirm that you have a larger size of the thumbnail available for Hub to access. Unfortunately, I cannot do this for you because it requires an authentication token, but if you could kindly verify it for me:
1. Go to https://cityofsydney.maps.arcgis.com/home/item.html?id=295675f834174b08bb8d4ea2af5e0d42
2. Right-click your thumbnail image and select "open image in new tab"
3. In that new tab, go up to the browser URL bar and at the very end of everything typed in there (it might be really long with your access token), add &w=400 to the end. No spaces. Just insert your cursor at the end of the URL, type in &w=400 and press enter.
If you have a larger image associated with the Item, it will be displayed, and if so, please let me know (or you can take a screenshot and post it here.) If you still see a small thumbnail (200x133), then I do recommend you follow Amanda Bishop's suggestion and re-upload a larger image because for whatever reason the larger version hasn't been attached correctly.