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Can on-the-fly projection of a raster be avoided by physically reprojecting the data into a different coordinate system?
Yes, physically projecting the data to a coordinate system of the data frame causes the on-the-fly projection of the raster to be avoided. However, the method used to project the raster must be selected with care. A single polynomial warp, as opposed to a very accurate cell-to-cell projection, is used to project raster datasets in ArcGIS. The general rule that applies to using the IRasterGeometryProc::ProjectFast method, the method used by ArcGIS Desktop, is that the input should be located within 70 degrees north or south in latitude, and the extent of the input should not be larger than a one-degree block of data. Basically, this method works well for small areas in midlatitudes. Visual Basic code to project raster data within ArcGIS can be found in the ArcObjects Online Raster Samples, but the output might not be as accurate as required.
If the raster is in grid format and a very accurate projection is needed, or the extent or location of the raster dataset exceeds the above-mentioned parameters, the Project Wizard in ArcToolbox can be used to project the data. This wizard is only available with an ArcInfo license of ArcGIS. The ArcInfo Workstation PROJECT command with the grid option also accomplishes this task.
If the data is a nongrid raster and a highly accurate projection is needed, then the raster must be converted to a grid, projected, and then converted back into the desired raster format. See the Related Information section below for the suggested methodology.