Thanks luvlabs, but I am exceptionally well versed in bitmaps and resolution.
The reason things look as good as they do on the Touch is due to the PPI (DPI) - 163 PPI - about double most monitors (My Dell is 80PPI). Since the Touch is 480x320, it can show as many pixels as a 960x640 display.
Nevertheless, none of this matters because when I view an image in the browser, and it's clear and sharp and the browser says that it's 669x1000 (as I wrote in my first post), then it's 669x1000. That's not a crappy picture, especially on the Touch, in fact, it's larger than the display.
So there's no reason at all that it should save from Safari and then view any different - except, as previously responded above, it's a bug.