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Projecting raster datasets in ArcGIS can be achieved through two methods: IRasterGeometryProc::ProjectFast or IRasterProps::SpatialReference. Both methods are based on a single polynomial transformation with 16 X 16 control points, regardless how big the images are.
There can be some distortion when the image covers a large area, or is close to the poles. Best results are obtained when the image is less than one degree in extent, and is between -70 and 70 degrees latitude.
If desired, highly accurate results can be obtained by using Workstation ArcInfo's PROJECT command with the grid option to perform a cell-by-cell projection.