Actually, the same just happened to me, and the image I tried to put in was hosted on TinyPic.com, was 141 pixels in height and 351 in width, and I had it along with the link in my singature are what I tried to update to. I got an error message.

It has to be a problem with ZU, however, because the image worked fine when I put it in my signature at vgrc.com moments ago.

EDIT: Scratch that, it just worked when I tried a second time.