Why are they not smoothly scaling down the image? Well because Internet Explorer simply does not support a smooth form of interpolation any more. It was indeed supported in earlier versions of Internet Explorer (version 7) by using ms-interpolation-mode.
Newer versions of IE do not support this. It is a very frustrating IE issue and cannot be solved by CSS.
The only options you have is to divert to alternatives (downscale it on the server or obey Microsoft and use Silverlight… 😉 ).
Hate to say it but the only true solution is to just live with it.