Library mode is showing you a jpg preview.
You can set the quality of the preview in the settings somewhere, but that will take up more space and is not really required.
I don't think that's quite right.
LR isn't showing you a JPG as such, because that's a compressed file format. If you started with a RAW image and haven't exported it, then there is no JPG to show.
But in the Library module, LR does create and cache various previews (constructed from the RAW data plus the 'recipe' for the edits applied) to make loading quicker. They may or may not be compressed using JPEG-style algorithms, but that's not important. What is important is that they exist at various sizes (eg your chosen thumbnail size, plus probably 1:10, 1:5, 1:4, 1:2 etc) so that LR doesn't always have to construct a small image on-the-fly from the RAW data.
When you edit an image in Develop, LR ought to create a new set of previews. It looks to me like that hasn't happened in this case, and you're seeing a preview which was created and cached before the most recent edits.
I don't know how to configure / control the caching behaviour in LR, but hopefully someone who does will be along soon.