Raigex
1
As stated above when i use GUI texture my diagonals look pixelated.
I am porting my application to the android and setting override for android true color. But i am still getting some weird pixelation diagonally where i see on my png i have some weird alpha values. Does anyone know how to smooth those values out so that it doesnt look that bad in Unity.
Posted new Images. THey look better but still a bit pixeley/blurry on top:

and the exact png i am using to get that screenshot

solution 1
if this caused by resizing - resize your GUI textures to screen so that it matches pixel-to-pixel
edit
you’d place two images in question and got an answer to this question 8) look at images - image on screen is scaled to about 5% greater. scaling in low values is true way to get pixelated diagonals. your source picture is nice, but you should not scale it for GUI. so or return it’s original scale, or re-export image increased from graphic editing app, so that in unity it will not be resized.
don’t scale GUI textures in unity at all
solution 2
if this caused by copressing - change compression to uncompressed in texture’s import settings
solution 3
if this caused by sharp alpha mask - fix it in you graphic edit app
alpha mask can be blurred in rather any graphic edit application. photoshop for example. apply smooth filter to alpha channel for it. or, if your images was created in high-res and then ported to unity in low-res, best way is to export these images again with resolution of target build. all this depends on what exactly is source of your issue and what effect do you want to achieve.
if solution still not found
post an image with your issue example
You can also try changing the Texture Import settings from Texture to GUI
are you sure it’s not scaled? 8)

look to texture importer settings. switch off converting to power-of-two size (for example, selecting GUI in texture type). GUI textures needn’t be converted to POT size
Raigex
5
While I accepted Scroodge’s answer I have found another answer that he didn’t post. The texture filtering is bi-linear which is supposed to smooth images when scaling (using pixels around it and such) but I have found that on weird diagonals (at < 30 degree angle) they leave black alpha artifacts. The best thing to do then is use point filtering. (but then scaling is really out of the question).