I believe the maximum attachment size is 1MB. That isn't really that small and many forums I've been a part of have had similar (if not smaller) limits on image sizes. Sure, in terms of the size of JPGs captured by modern cameras it is small, but most cameras provide images over 5MB. Large images like that take up a lot of server space and take a lot of bandwidth to download. images of 100-200K provide plenty of resolution for our purposes and are much faster to load. That's why the limits were put in place.
So as Jason says, just resize the image to something smaller 1024x640 is a good size.
Kim