The folks in Japan, 2ndFactory have done an amazing amount of work with Deep Zoom. The project title was JellyFish and it's been hot topic here at Redmond.
I can't tell you how many times internal people have asked me "when's it coming out.." and then trail off on how they plan on implementing it.
To quote Ken:
So, we want to develop common framework that is useful for most of web agencies to achieve more spreading situation of unique Silverlight Deep Zoom application.
Jellyfish Deep Zoom has two main parts. 1st one is client side library(.dll) that can use for Deep Zoom development easily for client side, 2nd one is server side deep zoom slicing application that can use for dynamic generation of deep zoom images and collections
Check this out and tell me what you think of it? I'm also looking forward to seeing what folks do with it, so if you make use of it, make sure you let us know!