OK -- sounds like it's time for My Pictures to be updated.
In .NET, I have more control over the image and can actually resize and reformat it (like if you upload a 1000x1000 pixel BMP, I can conver that to a 500x400 JPG or whatever dimensions are). I think that'd be great for new users.
Also, folders sound like they'll be important: http://chooseyourstory.com/forums/message.aspx?MessageId=539, and I'd like to get some more feedback on that. We can do either FOLDERS or TAGS.
Also, the little My Pictures Gallery on the Rich Text Editor should probably be updated as well to allow user to upload directly in there?