I'd go for blurry-but-visible over sharp-but-illegibly-tiny any day.
Even if all the browser did was plain pixel-doubling, you'd still end up with your image exactly as it would appear on a low-dpi monitor - the only reason it looks worse is because the rest of the screen is high res so the pixelation is more obvious.
Once you add in good anti-aliasing, IMHO even a low-dpi image scaled up on a hi-dpi display looks better than the same low-dpi image displayed natively on a low-dpi display.