Jason,
I Played with it in Illustrator and yes, the best I could come up with in colors was kinda wonky.
I switched up and traced it as black and white with slightly better results...
the settings I used (in CS3) are as follows;
threshold 62, path fitting 1.5px, min area 5px, corner angle 20.
these settings produced 44 paths with 311 anchors.
At this point I should disclose that I rarely use Illustrator for tracing so others may have better results.
I am much more proficient with Inkscape and the file yielded very good results with both color and b&w outputs.
The above applies to the Navy Chief graphic request you posted here