Sorry for the rant before - I had struggled and got nowhere!
The problem I encountered was that having tried to drag and drop an over size image to the appropriate area and got the error message, the system would not "forget" the failed attempt, so even after I had adjusted the image down, when I tried again to upload it it errored again. I could only get out of it by abandoning the post and coming back to it later - not ideal.
I still think the 500k limit is too low, and the method of selecting images to upload at Cointalk far easier to use. As a result their forum has far more images uploaded and so makes more interesting and informative reading.