I think that checkbox only affects when IE is displaying an image by itself (not inline on a page).

In a high dpi display (>=120dpi), IE can be set in the registry to automatically scale graphics to try to match the ratio that the fonts and other stuff are scaled up. It sounds like that's been turned on Cybjorg's computer. Check out the HKCU\Software\Microsoft\Internet Explorer\Main\UseHR entry in the registry and set it to 0 if it's currently set to 1. You may have to log out to get it to take effect, but when it does, it was display graphics using only the number of pixels that are in the actual graphic itself. The graphics will be tiny on you high dpi screen, but they won't have scaling artifacts at least.