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This could be done mainly at the backend, for instance if you have server based (gd for php) graphics manipulation you could request an image @25% then @50% etc as each level completes it replaces the the first. The issue I see with this is if you use more than a couple of progressions you are really wasting a lot of time and bandwidth, a highly compressed jpg at say 50% size then the full sized, full quailty (to reasonable constrains, say 1024x768) usually works ok for this sort of thing.
Another way which I have used is to have 2 images already on the server large_thumb/full, I load the thumb and it shows pixelated but as soon as the next quality level arrives I use a fade effect to replace the thumb.
Thanks for your answer David!
If anybody got more ideas about this, please share it with us.
At each level, the image would be tiled horizontally and vertically as sections.
First level: lowest resolution, one tile
Second level: higher resolution level 2, four tiles
Third level: higher resolution level 3, sixteen tiles
If the user can scroll around in the image, then you will need to download images corresponding to the other tiles at the same level, progressively, as the user drags the mouse around.