Let me say that this could be just me, since I have only used this feature a few times, but all of the panoramic pictures I have shot have very blurry quality to it. Personally, I think it's due to Sony's sub par jpeg engine. Never did like the jpeg pictures that come out of a Sony camera. Another reason might be that processing and stitching so many frames into one panoramic picture takes a lot of CPU cycle in the camera; higher quality jpeg compression might be too much for the camera's internal computer to handle.
In any case, it's better than nothing and when you reduce the size, it does look quite all right. To get maximum quality, one still need to shoot RAW and stitch them together using dedicated software.
Life Guard Station in Kew Beach -- NEX-5 & Pentax-M 20mm f4. Click to see larger.