I attach a working version of the rewrite. 

New image-transform.el with transform api and UI. I rewrote some parts
of image-mode, most interestingly by adding image-mode-auto-resize,
which see. More work should be done - namespace cleanup; n/p/g should
not reset the mode as it messes up user local setting and makes deriving
modes dificult; support for multiple images per page etc.

New keys in image-mode:

   +               image-scale-adjust
   -               image-scale-adjust
   0               image-scale-adjust
   =               image-scale-adjust
   B               image-change-background
   [               image-rotate-left
   ]               image-rotate-right
   o               image-rotate
   r               Prefix Command
   
   r f             image-fit-to-window
   r h             image-fit-to-window-height
   r s             image-stretch-to-window
   r w             image-fit-to-window-width
   
   T               image-mode-show-thumbnails

r stands for resize. A better fit wold be f but that one is already
bound to image-next-frame for multi-frame images.

Currently only internal imagemagick backend is implemented for things
that are exposed at elisp level (:width :height :background
:rotation). Convert backend will come latter. To illustrate the API try:

   (setq tt (create-image "/path/to/foo.png"))
   
   (image-transform tt :scale 200) ;in %,  imagemagick convention
   (image-transform tt :scale 25)

   (insert-image (image-transform (copy-list tt) :resize '(500 . 500)))
   (insert-image (image-transform (copy-list tt) :resize 200))
   
   (insert-image (image-transform (copy-list tt) :resize 'fit-width))
   (insert-image (image-transform (copy-list tt) :resize 'fit-height))
   (insert-image (image-transform (copy-list tt) :resize 'fit))
   (insert-image (image-transform (copy-list tt) :resize 'fit-stretch))
   (insert-image (image-transform (copy-list tt) :resize 'fit-if-large))
   (insert-image (image-transform (copy-list tt) :resize 'fit :rotate 45))
   (insert-image (image-transform (copy-list tt) :resize 'fit-height :rotate 60))

   (insert-image (image-transform (copy-list tt) :background "pink"))


I have changed insert-image to take an additional argument MAP to hook a
transform keymap as local text-properties keymap for the image. With the
following you should get all the transform keys listed above to work on
the inserted image:
   
   (insert-image (image-transform (copy-list tt) :resize 'fit)
                 nil nil nil image-transform-map)

Would be nice if insert-image would hook a transform map by
default. Then all modes that use insert-image can automatically provide
transformations. But I couldn't think of a handy prefix for this map.
   
I will be out for a week and will resume when I am back. In meanwhile
suggestions are welcome.

    Vitalie