Surely its an issue with the sites server !
Just a shot in the dark,try reducing the JPEG with Shrink Pic ,install this and as you upload the pic,shrink pic will do the resizing...only a guess
Shrink Pic click here
Obviously you know how to resize ok,just an idea and SP may just help out.
What happens if you try to upload through Firefox to the site ?
Is this problem just through IE ?