As already said, the f/14 is what 'killed' the quality in this image.

At f/14 and 70mm on a crop sensor, assuming no crop on the full image, you would have been approximately 2m from the people in this image.

At those settings(give or take with the distance), a DOF calculator would have told you that your DOF for this scene would have given you about half a meter of a zone in 'sharp focus'.

What isn't revealed in these calculations is that this zone of sharp focus is actually an illusion, some people may see the zone of sharp focus differently.
But more importantly, the reproduction ratio of the image will depend on what looks sharp(or in focus) .. not so much the absolute values from the calculations.

That is, if your purpose is to make a regular 4x6 or 5x7 print or display the image at about a 24" screen size, the small reproduction ratio will give you the 'illusion' of more depth.
If you crop to the 100% pixel peeping ratio as in your 100% crop, then the focus zone will appear shallower and hence not as sharp.

If you changed aperture to say f/4 or f/5.6(being a superzoom lens, this may have been something like f/5 or something), and kept everything else the same, the depth of the zone of sharp focus would have gone from the original ~ 1/2 m to somewhere between 15cm to 20cm.
Given that the average persons head is about 20-30cm in diameter, this is more than enough depth to give the illusion of a sharp zone of focus.

At this f/4 - f/5.6, the ISO setting in Auto ISO would have been more like ISO400-ish.

The D90 has the same sensor as the D300(which I have) and the quality difference between ISO3200 and ISO400 is massive.
ISO3200 quality is actually quite good if it's needed, and I've set up my D300 to use Auto ISO up to ISO3200 too .. so there's nothing wrong with that, but it's not like a D7000, or D3s in that the difference is small.
So if quality is your priority, keep ISO exposure changes to a minimum. i.e. try to maximize shutter and aperture, if increasing light is not an option before you up ISO.

The other thing to note on why the f/14 setting may not have been appropriate is the sharpness of the Christmas tree in the background! It's too sharply rendered.
For a landscape, or macro scene .. perfect!
But for a portrait scene .. this much DOF isn't complementary to the scene.

The other point of note is about the use of noise reduction, either in camera, or possibly in software.
Not knowing your workflow, this is hard to help with.

But briefly:
don't use NR in camera unless you're shooting in jpg mode.
Don't shoot in jpg mode, shoot in raw mode.
Many of the available software options(free) can perform good noise reduction with good control.
Usually paid for software will give you more control so that you can paint noise reduction into the scene to mask it really well, and if your exposure is good, you don't usually need to much on the detail areas in the image.
As an example of that, in this image, I would apply heavy NR to the background of the scene(ie. the non face areas) .. and then either zero NR to the people's faces or if needed much weaker NR to their faces to remove any chroma noise(the coloured noisy look).

Hope that helps too.