Shazi,
This is what happens when JPEGs are created. The way they work is by compressing similar data and as trade off to decreasing the memory size of the file, the quality suffers, introducing 'artefacts' (pixelised areas).
JPEGs are really only useful for four colour images such as photos where the effects of the compression aren't as evident. JPEGs aren't good at handling large areas of block colours.
As the other guys have said if the logo is created in Illustrator, why aren't you exporting it as an EPS or a PDF and using that? Vector files saved as EPSs don't break up whatever the scale as they are based on maths rather than resolution (very layman's explaination!)
Try that and you'll see the difference.
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