ok...having just checked the specs on the camera
1) it uses digital zoom only .... a very BAD thing -- that is a chief reason your getting such grainy (proper term -- pixilated) pictures. same thing happens in traditional film photography when you take a very small section of negative and blow it up.
2) due to design of camera, the flash is too close to the lens -- typical of point an shoots --- which causes all kinds of glare/reflection problems
these types of cameras are meant for the fun vacation shots where the closest anything gets to the camera is about 6 to 8 feet.
now...how to overcome that short of getting a new, better camera.
1)...don't use the digital zoom...get in as close as camera will allow and still be in focus. according to specs this is about 2 feet 8 inches (and yes use a tape measure to verify...even the pros measure for critical product shots)
2) use the very highest setting for picture quality.
3) put camera on tripod!!!!
4) forget the flash....instead use several lamps w/ the natural color bulbs (the pale blue ones in them) to light the item. Best type are those luxor style lamps (on adjustable spring arm with directional shade)
hint -- line one lamp's reflector w/ aluminum foil for a "brighter" reflection
and put a piece of thin typing paper over the other for a more diffuse light.
place the brighter one to right (key light), diffuse one to left (fill light).
lights form a right angle with each other and are above that cake at about a 45 degree angle.
large pieces of white paper can be added to reflect more light onto cake and black paper to keep stray light away.
if you have a corner in your house that has light colored walls, set cake beauty shot up there as the wall will acts as reflectors. works best w/ white walls -- unless you like the "floating in a void" look then do in front of a black background.
5) once you have the picture, load into computer and use photo editing software to touch it up, crop, change background, etc.
Your camera is only good for up to 8x10 photos and that would be pushing it. best to keep to 4x6 or 5x7 sizes.
you can digitally "blow-up" the photo in the computer, but keep above size limits in mind (will be easily able to preview results this way).