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This is normal (but fixable!). When a layer or image is scaled down PS removes pixels to scale it down - you cant physically have the same number of pixels in a smaller place!) so when PS enlarges that layer or image it has to guess what the lost pixels were, hence the reduced quality.

However the solution is to convert the layer to a smart object first. Do this by right clicking on the layers icon and selecting "Convert to Smart object". If the project is a number of different layers you could either flatten the layers - or you could merge all the layers into one top layer by clicking on the top layer and then using the key combination Ctrl + Alt + Shift + E. You can then turn this merged top layer into a smart object and reduce and enlarge to your hearts content!

Hope this helps

Cheers

John