Yes, I agree. As an end user I noticed many changes this past year, and much for the better. I commonly use image search for inspiration - visual ideas for how to depict various concepts. this year, the results have become dramatically more useful to me, with irrelevant images much less common.
What I think may be happening is this. Even more than with the text search algo, Image Search crawling and indexing cares almost nothing for the webmaster. It's now almost totally focused on the end user. The fact that the site: operator is set up at all is almost an anomaly.
When I get the time, I hope to study image search more from this angle. For now, I'd bet these drastic changes that Husky is reporting are linked into this more intensive focus on the end user and the types of purposes that bring users there. There's probably a taxonomy established for these purpose - especially a taxonomy of query types.
Husky, have you been watching the query terms that brought you image traffic in the past? I'm also wondering if you watch any stat like "images indexed versus clickthrough traffic from Google"