First you have to make sure the image isn't too big. (I think the size limit is somewhere around 15 Kb.) As for which format to use, I converted mine to a .png file because they seem to save in the smallest file size while still retaining good color and resolution. After you've edited and made sure your picture is the right file size, then save it and it should work fine.
PSU Character:
Izurei - Level 50 Cast, Rank 10 Ranger/Rank 3 Force (Future Guntecher) - Universe 2 or 15
Izurei - Level 50 Cast, Rank 10 Ranger/Rank 3 Force (Future Guntecher) - Universe 2 or 15

