Is "pixilated" correct?

For as long as I've been writing about videogames -- as a fan, as a co-founder of a hobbyist site, and as a freelancer, counting all the way back to the days when I wrote terrible reader reviews for RPGamer while Paws was running things on that part of the site -- I've tried to remember to type the word "pixelated" and leave it at that. It's not a real word in the dictionary. It gets the red-line stink-eye from Microsoft word. Hell, I don't even see it in the Videogame Style Guide. Nevertheless, I've used it to describe game visuals in which pixels -- the dot, the fundamental element of a digital image -- are especially prevalent, for better or for worse.

Of course, I couldn't "just leave it at that." All of the indicators that pointed to "pixelated's" non-existance (Word, dictionary, style guide) have -- at least as long as the style guide's been out -- made me go back and begrudgingly change the word to "grainy". Only this isn't entirely accurate, since it carries a negative connotation and doesn't entirely carry the same meaning of what I try to emphasize when I mean "pixelated" -- Mega Man 9 is pixelated but it ain't grainy. Nevertheless, I'd change the word more often than not.

Now, this post isn't a complaint or a plea or whatnot -- the situation is just a little curiosity of mine. Today, I saw two separate instances of the word "pixilated" in place of where I'd use "pixelated" instead. Running the spell-checker in Microsoft Word to give me some assistance with regards to "what is the correct spelling then, Mr. Gates?" would return "pixilated" too. But, I never used it because -- despite it being a real word -- it doesn't fit the definition:

Main Entry:    pix·i·lat·ed Listen to the pronunciation of pixilated
Variant(s):    also pix·il·lat·ed Listen to the pronunciation of pixillated \ˈpik-sə-ˌlā-təd\
Function:    adjective
Etymology:    irregular from pixie
Date:    1848

1: somewhat unbalanced mentally ; also : bemused
2: whimsical <pixilated pleasures>

Given the definition of the word, I don't believe that it fits the context of either of the articles I saw -- though in a certain light I might be able to justify its usage in Kotaku's Cave Story post (in which I'd imagine it would use the second dictionary definition -- "whimsical").

The funny thing is, if you plug "pixilated" into Google, the engine offers a correction (as it usually does before the first search result):

Did you mean: pixelated

Word. Sergey and Larry know whassup.