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Suggestion: Grey out higher resolutions
If you have an image with the size of 1024x768 its not useful to make it bigger instead of smaller. This is the reason why the optional setting "Only shrink pictures" exists.
If you simply grey out the options that would not cause a shrink this option wouldn't be necessary anymore. Of course it should be still possible to select a higher target resolution, but there should be a visual difference.
Or you simply change the text from "Medium (scales to 1366 x 768 pixels)" to "Medium (upscales to 1366 x 768 pixels)" if the target will become bigger.
I hope you like this idea.