I just tried again and it still looked to be 500x640 to me.
The physical size of kindle is roughly 90mm x 120 mm. So in order to display an image of 525x700 natively, the picture has to appear roughly 78.75mm x 106.75mm. However the largest picture (in a prc file) I have ever seen is roughly 74mm x 97mm. That's why I believe the largest pic dimension on the kindle is 500x640. Please correct me if I am wrong.