I've run into that. If you're using the downsizing patch from Windows, use the smallest size and the resize it again. If you want to put up an avatar, I had to use the advance button and set it to 80x80.
I have been using a freebe that I got off the web. That if called FastStone Image Resizer. It make it pretty easy to resize a photo. It will also let you do a whole batch of photos at the same time. It will let you rename photos easily while resizing them. It is pretty easy to use works great and it free. See the link. Have fun http://www.faststone.org/