We have now re-written our picture tool to do a better job.
We use our picture tool to create the product thumbnails used on the site and in some cases it would get the product thumbnail completely wrong and also change the aspect ratio of the picture we were trying to create a thumbnail from.
This has all been corrected and tested. We are currently considering creating thumbnails in png format instead of gif format, as there are many advantages of using png format, the most important one being that the transparent image is not limited to 256 colours. Png's use 32bit colour space which should result in better looking thumbnails. The only down side we can see with transparent png images is that many browsers may not support transparent png images, as this is a relatively new addition to web browsers.
Please feel free to contact us with any questions you may have.