Though pixelated is the standard spelling of the word meaning rendered with visible pixels, there’s a good reason that spell check does not catch pixilated. Pixilated is an old, seldom-used Americanism dating from the middle of the 19th century and peaking (in this use) in the middle 20th century. It meant (1) crazed, bewildered, or whimsical, or (2) intoxicated.1
Pixilated derives from the noun pixie, denoting the mythical, mischievous creature.2 One who is pixilated is under the sway of a figurative pixie or behaving in a pixielike manner. The word’s exact origins are not known, but it might have been a fanciful coinage influenced by other -ated words such as elated and titillated. The phrasal adjective pixie-led (which is listed in the OED, with the earliest example being from 1659) might also be a source.3
Whether anyone still uses pixilated this way is difficult to say. In historical Google News searches, most of the instances of pixilated used this way are from the 1930s and ’40s, with only a few scattered examples from after 1950. There are no easily found examples in recent sources, though there could be a few buried among the thousands of instances of pixilated used in place of pixelated.
In any case, pixilated very often appears in place of pixelated in writing from the last couple of decades, and many dictionaries list it as a variant. So to call pixilated a misspelling of pixelated would be unfair, even if the spelling is not exactly logical (pixel having an e in the second syllable).
There will be gadgets calculated to shame even the pixilated genius of Rube Goldberg. [Spokane Daily Chronicle (1937)]
The boys could catch up on chemistry and Sallust while a staff of pixilated publicity men made the welkin ring with news of their triumphs. [Youngstown Vindicator (1941)]
And I suggest that your dad have a talk with his pixilated sister and urge her to enlist the services of an accountant or an attorney. [Calgary Herald (1961)]
This small, pixilated cat was believed to ward off gremlins and goblins and even avert shipwrecks. [Milwaukee Journal (1967)]
Time was when anyone we thought was pixilated was merely called nuts, screwy, or wacky. [Kentucky New Era (1980)]