I just had a look at Photodeck and they use this as one of their selling points...
Auto-scaling images - Your images can scale to fill the available screen space.
Which is true but seeing as that is exactly what they do the end result is simply awful. Images should not be scaled, they need to be rendered out to match the screen size image is being viewed on from a high quality master image. Looking at this example of theirs on my 26" screen and it looks like garbage.
Agreed, they look pretty bad on a large screen. But it's because the images are scaled up more than they should be. If they want clean full-screen photos they need to use larger files. Browsers do a pretty decent job scaling images, but you are still mostly limited to downsampling. There's no free lunch to increase the size beyond its native resolution.
Having said that, rendering images to specific screen sizes is easier said than done. Have you ever tried to implement this?
Custom-sized images on the fly sounds great, but the difficulty in implementing it is why you don't see it. Given time we may see an html solution that allows us to specify different images for different resolutions right in the code. See here: http://picture.responsiveimages.org
. If this ever makes into the browsers a lot of these problems will go away.