I have been talking to Denise about this, hopefully it will go back to the way it was.....
The change appears to have been introduced with a hotfix to the platform that we got and installed last week.
We are currently looking into two things:
1) Rick (19hole) is unable to upload images at all right now. He is using IE9. We are trying to reproduce that issue to see where the problem may be.
2) We are looking into increasing the image size limit which will require additional resources on a shared server.
BostonBuzza, I'll confess that out of laziness and because most of my images are taken on my iPhone I get the iPhone to resize them for me. The quality isn't great, but this isn't a Photo contest. If I want to post pictures to the site, I email them to myself at the "Small" size option which automatically sizes them at around 35k. Emailing it also gets it to my desktop where it is easier for me to post them. (And yes, we are still hoping to improve the mobile experience)