Resizing linked images in Illustrator results in choppy looking images

I have been using illustrator and CS software for many years now, and I have one major problem with the CS5 version of illustrator:
I cannot resize any linked images without compermising the images quality. I am a professional and have a deep understanding of illy but cannot figure this out!
Details:
-I am not trying to size UP. I'm Talking about taking an image and shrinking with the transform tool.
-The image also looks choppy when I rotate the image.
-This resizing issue doesn't have anything to do with how it renders in illustor. If I export a tiff file I get the same problem.
-I am not talking about dramatic resizing, just within 50% or even less of the original size
My workaround has been to export a tiff at 300dpi and then editing the tiff in photoshop by placing the linked image on a second layer and positioning it to cover up the "choppy" image. This is obvisouly a terrible work flow but it has worked so far.
Another workaround would be to resize the image in photoshop first and then place it in illustrator at 100% the size so I don't need to resize anymore.
Can anyone help me? thank you so much!!!!

By resizing a placed image in Illie you are only changing the size, not the content of the image. So if you have an image that is 300 ppi in original size and scale it by 50% in Illie you end up with 600 ppi. What it looks like on screen is not the point, it's the content that matters. You can physically reduce the size of an image in Photoshop. You can also control the final ppi of images for output by the compression method you select when exporting to Acrobat.

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