Hello, I am Teddytetsuya, the photoshop fiend, I use it too much, but alas, these forums fight my art, hehe. Glad to see these forums up and running so nicely already.
Hmm... Well for the file size limits, I just go into PSP, go to the JPEG image saving settings and jack up the compression value until the file size is low enough. Usually doesn't mess up the image too bad either. PNG is usually way too high and GIF screws up the picture too badly XD
Works for me. Are you sure you're trying to upload and not typing in the link to the image manually? (links won't work... have to upload from your computer)
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