I *think* scaling of xpm images used to work (maybe back when
ImageMagick did the scaling?) - but it doesn't now, e.g. if you go:

  (insert-image (create-image "/usr/src/emacs/etc/images/smilies/medium/wry.xpm" nil nil :scale 20.0))

a tiny 16x16 image is inserted. The expected result was a huge 320x320
image.

If I convert the image to png:

  convert /usr/src/emacs/etc/images/smilies/medium/wry.xpm /tmp/wry.gif

and insert it with:

  (insert-image (create-image "/tmp/wry.gif" nil nil :scale 20.0))

I do get a bug 320x320 pixel image in my buffer.

(Interestingly, if I convert it to PNG and insert it, I get a 320x320
pixel image, with the original small 16x16 graphics inside it, so
scaling seems to not work for PNG either, in a different way.)

This is what it looks like in emacs -Q: