Last month, photo sharing app Instagram hit an impressive milestone: 150 million photos shared by over 7 million users. To put this into context, at the same point in their early life, both Twitter and Facebook had yet to reach 1 million users.

Today, Instagram is launching their most ambitious update to date, version 2.0, just in time for their 1-year birthday in October.

The biggest change in the new Instagram is the live filtering. Unlike the old version where you had to snap a photo and then apply one of the filters, Instagram 2.0 allows you to apply the filter to the in-app camera on the fly. Basically you get to see your shot in various different formats before you even take it.

Once you take a photo, you can change the filter afterwards, even returning a photo back to normal after snapped with a filter in place.

This could encourage users to use the in-app camera, instead of choosing to snap photos with the iPhone camera and import them into Instagram for filtering.

Speaking of filters, v2.0 adds four news filters: Amaro, Rise, Hudson and Valencia.

They have also added instant tilt-shift so that you can manipulate the focus with selective blur live. The borders that appear on some of the filters like “Nashville” are now optional. You can remove them at any point in the photo-taking process.

Another big change is that Instagram has upped the resolution of the photos that you take using the app. It’s important to note that the photos will still be 612 x 612 when shared and viewed with the app, but they will be much higher-res when saved to your device after you upload them. This means that your Instagram-filtered photos will be accessible only to you as high-res –

High-resolution versions of your Instagram photos are saved to your device’s camera roll after you upload the photo to Instagram. This means that you are the only one with access to high-resolution versions of your photos. The resolution of these photos is 1936×1936 on the iPhone4 and 1536×1536 on the iPhone3GS (the resolution of photos uploaded to the app is 612×612). Others will not be able to access your high-resolution photos on Instagram share pages or third-party websites/apps that use our API.

Instagram is still only available on iOS, much to the chagrin of Android users. This update is supported by iPhone 3GS and 4, iPod Touch, and both iPads.