The pixelation doesn't just happen when you resize massive pictures. Even if there is the image is just barely too large, and gets resized by the algorithm, it experiences the same awful amount of pixelization.
HP10T, I'd love a link to your forum so I could see your plugin in action? PM is fine.
As far as this not being a photography forum... The fact that we even allow [lossy] JPGs to be embedded already makes that abundantly clear.