Hello mate, Welcome back!
Ideally, I wouldn't do a 100% width for your images on the site for enlarging them. No matter what plug-in you use, you'll definitely end up pixelating the image at least to some extent.
However, if you're definitely looking at achieving this, try this: http://archive.plugins.jquery.com/project/aeImageResize
And, start with a higher resolution of the image. The plug-in will scale it down proportionately depending on the screen dimension you're displaying it on, rather the DIV dimension that holds the image inside.
Also, it is to be noted that usage of multiple jQuery will lead to a performance issue on your site. You should keep this in mind.
One last thing: having said that you should start with a higher image resolution, your load time for the site will considerably increase as the plug-in only scales down the image visually, it doesn't load differently sized images!
If I were you, I'll keep the thumbnail images to zoom in to one optimal size and then provide a link inside my fancybox/ lightbox to a much fuller, bigger size image - if someone is interested in seeing them/ downloading the big size image.
im gonna give it a shot i got caught up in a job..thanks so much sudarshan! i have another question ill post as a sepeerate discussion--best todd