It's not a bug, it's a very annoying "feature" of iOS7. I agree that it's very annoying, but it's actually meant to work that way in iOS7. In iOS6, you could use any size/shape photo, and the OS would add black bars as needed to fill out the screen. iOS 7 did 2 things that contribute to this issue:
1. It added parallax, which requires a small amount of zoom-in to allow for the motion effects
2. It removed the option of adding black bars to background photos, so it has to zoom in a LOT (the exact amount depends on the orientation of your screen, and the aspect ratio of your photo)
Turning off parallax pretty much solves the issue for many backgrounds on the iPhone, because issue #2 ONLY has to deal with portrait mode. But it is MUCH worse on the iPad because it has to handle both portrait and landscape modes. Your background photo can't be in both portrait AND landscape mode unless it is square, and even then, it has to zoom in by a certain amount because your screen isn't square.
If you really want backgrounds to behave the same way they did on iOS6 (with black bars on one side and no zooming in), you need to modify the photo by manually adding black bars on one side or the other to make it square. There is a nice (free) app designed for this exact purpose, and it's called InstaFix. Just use that, and stop searching for a better solution, because there isn't one.