The PNG and filesize issues (may be) a recent "bug fix" related issue, because we find the following to be true:
1. Using a PNG sometimes works, or sometimes shows up as a single black image.
2. Using a very large image sometimes work, or sometimes results in creating 1-3 blank entries.
So currently, it is our general recommendation to not submit super huge images or use PNG, until the developers can fix the issues that causes these two problems.
This does not seem to apply to Gallery images, or at least I have not heard of any problems with that.
That 500px remark is just my own, when I am editing images that is the size I often will work with, between 400-500px width.