Jackie has it right. This plugin follows the same approach as calibre of resizing the cover image to your device output profile. It resizes because (a) some legacy devices don't do resizing very well and (b) it results in a smaller ePub. If you want a larger image, set the appropriate device profile for that.
And no there is no elegant way to handle multiple device image sizes for your books. Personally it doesn't bother me because while I have both iPads and a Kindle I only use the Kindle for reading on - I would never bother trying to read an ePub on an iPad. It is only PDFs I read on the iPads and they are not put through the calibre conversion pipeline. However I can understand that if you were trying to put the same books on a phone and a larger ereader it could cause you some headaches. Just carry your reader around and stop trying to read on your phone
