Photon will make sure that your images fit your theme's content width. If your theme's content width is set to 640px, images will indeed be shrinked.
If your theme doesn't define any content width variable, you can add a $content_width value by adding the following code to your theme's functions.php file:
if ( ! isset( $content_width ) )
$content_width = 800;If you'd rather not edit your theme's functions.php file, you can also try the following plugin:
http://wordpress.org/plugins/custom-content-width/
Let me know if it helps.