Don't use MS paint for custom graphics because it makes them look all grainy. Use GIMP or paint.net (you should find them easily if you do a web search for them).
However, other then that it's pretty good! The blue may be a little bright for a background though.
But uh, yeah, you kinda saved that in the wrong format mate, you need to save this stuff in a .GIF format outside of the standard MS Paint program. When saved in MS Paint, the pictures become grainy and ugly as hell.
I always use Paint.net to save my stuff in a gif format, dunno why, but it's pretty much the BEST way to save these images without any problems or decrease in quality.
Also, you seem to understand reshading, removing the crappy quality, the pipe is a nice bright blue, it's not too hard on my eyes, but you need to put a bit more effort in for your next background. The tutorial Enjl posted is really darn good for getting into spriting/recoloring.