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MobiPocket has taken the approach of fixing the small image problem by switching to JPEG images, but that leaves all the existing e-books with tiny GIF images (and many new ones as well, because publishers are slow to switch - in part because of compatibility concerns). MobiPocket should add a fix for legacy e-books, by scaling up small images. This won't be perfect, but better on large screens than leaving them unscaled.
Part of the problem is that the MobiPocket Java Reader software used by the iLiad and Kindle is the least developed of all MobiPocket's Readers. Other areas where MobiPocket's Java-based Reader is behind the times: can't show large images at their original size, can't set margins, can't change line spacing, can't change fonts (on some devices). The Cybook's reader probably isn't the Java version, and it does have more features. Perhaps Bookeen could take the lead and demonstrate that scaling up small images is a worthwhile thing to do.
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