I run Win XP SP3, set to 120dpi, and have used IE8 without image scaling
problems, and without having to change registry keys.
(a) Pages have been zoomed to 125% initially, which I have reset to 100%
(lower right corner of the browser window). IE8 will behave and stick to this
setting - unless you have checked Internet Options -> Advanced ->
Accessibility -> Reset zoom level for new windows and tabs.
(b) I have unchecked Internet Options -> Advanced -> Multimedia -> Enable
automatic image resizing.
That did the job for me. Yet I haven't found a way to get rid of the huge
icons in the IE8 toolbars - another of the 120dpi side effects. There are
lots of complaints on the web, but apparently no solution. Here is a
screenshot by another victim: