I totally agree with you on photoshop's ability to enlarge pics. I know that it will make the enlarged images look pixelated and stuff. I think there is a way to do it correctly in photoshop, since its such an advanced software, but I haven't found the right method yet. I currently enlarge in psp 9 and will imagener a try.
enlarging pictures is a crapshoot.. just like editing audio and video, you're output is only as good as your input.. in my opinion, you should never make a photo bigger than it is.. changing DPI settings and things like that is fine to get a good print out, but trying to blow up a 2.0mp image for output on 11"x14" or bigger would just be silly.
photoshop is an advanced software, but it can't do miracles.. that imagener software is decent, but again it would only be a last resort for me.