I have created a new Cocos2d project and I deleted the ‘Hello World’ label. I have added this image (320×480 px) and tested on iPhone 4, here is the result. The image’s dimensions have been reduced to 1/4th of their original size, not sure what’s going on. I never had this problem before with the previous version.
Source Image

Screen Shot from iPhone 4

You should enable retina display if it’s not already enabled:
And provide the retina version of the background image using the “-hd” suffix.
backgroundImage.png (320 x 480 px)
backgroundImage-hd.png (640 x 960 px)
By the way you can set your own suffix: