Reversing Camera image has lost its clarity on touch screen.

have you cleaned the camera lens?

 

This. In other situations the camera focus might be adjustable in and out, and the lens position might have slipped.

The MFD isn't going to make a picture out of focus or fuzzy, it is a flat screen display and has no "focus" at all, pixels are more or less 1:1 in position with those in the input signal. A bad MFD might make the image dim, or have holes in it, or be mottled though. It might have an image which moves around on the screen (if there is a problem with sync.) If there is static or other "noisy" image, especially if it gets worse when the car vibrates, suspect a problem with the cables. That sort of issue could be in any circuit board too, like from a cracked solder joint, but always start with the cables since they are more exposed to abuse.

 

I usually have to clean (or rather dry) the lens before backing in when it has rained on the drive home.

On time, when that did not clarify the image, I had to gently (hand) polish the lens with some cutting compound followed by some headlight lens polishing cream.

I don't know what happened to necessitate that (and visual inspection of the lens surface did not show anything of significance), but it cleared up the image so it was vastly improved.

 

NOT cutting compound or other polish. That lens is either plastic or glass, and in neither case do you want to scratch it up with abrasives. Clean it with plain water, preferably just squirted on, maybe with a little detergent if there is something oily on it, and rinse with distilled water so that it doesn't get hard water deposits on it. If you must rub the lens, which is generally a bad idea, use a very wet soft cloth and no pressure. Any grit on or around the lens may scratch it otherwise.

 

I hope you didn't miss the part where I said gently, and the part where I said to follow up with headlight polishing cream.

Good advice, but the OP has already stated that that did not clear the image.

Glass is very hard, and I doubt cutting compound designed for automotive clear coat will cause any scratches. If the camera lens is plastic, you probably know that headlight lenses are also made of plastic, and to clear them you use several grades of sandpaper followed by at least two grades of polishing compounds to get them back to clear so I don't really understand the concern.

The key is doing it gently due to the small area of the lens.

 

I have seen posts here and there which state that the Prius's rearview camera's lens is glass. Glass can be polished but ideally using something like cerium oxide. Polishing an optical lens is not quite the same thing as polishing the scratches off a windshield. In the latter case slight changes in the curvature on a surface which is very close to flat will not affect the driver's view. However, if the outer surface of the lens is curved changing that curvature will change the focus of the lens. Most likely it would be flattened, which if done perfectly would move the focus behind the top of the sensor chip. That would make it "far sighted". But random hand polishing would not be perfect, it would introduce aberrations because the focal length would differ from one part of the lens to another. Not saying that a curved outer surface is necessarily the case here. If I were designing a lens like that I would make the outer surface dead flat and put all the curvature on the inside lens face. It could be also that this is a pinhole camera, in which case the outer part is not so much a lens as a window, flat on both sides. The pinhole should be obvious on inspection.

Has the OP examined the surface of the lens, and inside the camera, with a strong magnifying glass and (probably) a flashlight? The surface might be pristine, but if the case has cracked and let water in nothing done to that surface will make any difference. Conversely, if the surface is contaminated, it should be visible. Glass can be cleaned with some very strong organic chemicals (I have even seen ether used for this purpose), however one must be very careful that those chemicals don't dissolve whatever is holding the lens in place, either the adhesive or the case itself. 50% isopropyl alcohol in distilled water on a piece of lens paper would be my first choice to clean a mystery surface contamination on an uncoated glass lens. (OK, second choice, after water or detergent and water had failed.) Test first on a spot on the case away from the lens to make sure it doesn't instantly turn into a gooey mess, and that no black stain appears on the paper. The last thing you want to do is smear dissolved dark plastic on the lens.