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Is such sorcery possible?

Calvin Hass has several articles on JPEG, including lossless transformations. http://www.impulseadventure.com/photo/

Better JPEG sells a library, Photoshop plugin, and (relatively simple) standalone program that allow lossless editing (only changed blocks are recompressed). http://www.betterjpeg.com/

You can crop and rotate JPEGs losslessly:

http://jpegclub.org/jpegtran/

Doesn't cropping have to be within a certain size, though?

EDIT: Yep, looks like you can only crop it along the DCT block boundaries:

http://www.ben.com/jpeg/

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