shadyghost: I think it works opposite from what you described...? You are viewing the original images at 1:1 zoom level for sharpness comparisons, right? If not, you're adding another resize algorithm to the mix, which is a very bad idea.
In my experience so far, the phone is resizing the image down to 5MP in a way that aggressively sharpens the image. If I resize the high-res pic down to 5MP with say, Paint.NET, and then flip between both images while viewing at a 1:1 zoom level, the phone's resizing is clearly sharper than Paint.NET's resizing. Paint.NET's resizing looks superior to me. I'm not sure if the phone is just being too aggressive in its pursuit of sharpness (I guess people complained about their pics being too soft in the past?) or if they're also using a lower quality resize algorithm, possibly for performance reasons. Resizing from 38MP down to 5MP is a reasonably computationally intensive task, and it's not clear (to me) what kind of hardware is actually performing the task.
Anyway I think the 5MP pics should be "good enough" for most purposes, but clearly you'll want to resize the high-res pics yourself when you want the best possible quality. It's a little unfortunate to be put in this situation but not very surprising. It would be cool if they had resize sharpness and/or quality settings for the 5MP pics. And it would also be helpful if they offered three settings for saving ("5MP", "38MP", "5MP+38MP") instead of just two ("5MP", "5MP+38MP"), but I'm guessing the rest of the phone's infrastructure is not up to that.