First, the good news: I increased the space allocated to post attachments from 500K to 1MB per member account. More space may be added later, but I make no promises. I still suggest using tinypic.com or photobucket.com for hosting larger images.
Second, there is now a per post attachment limit of 100K, which should be sufficient for most reasonable sized pictures.
Please let me know if you run into any problems with the new settings or need more space for a specific purpose.