This discussion evolved from the thread: http://www.sawmillcreek.org/showthread.php?t=146903 - I thought it deserved it's own thread.
I had always been under the impression that DPI had nothing to do with Vector Cutting. Due to the discussion above and my own tests, I now believe otherwise.
The following pictures where all done with the same image and same vector settings. However the oval on the left of each picture was set at 75 DPI the one on the right of each picture was set at 1200 DPI. There is some distortion due to the enlarging of the photos, but the difference is obvious.