When I reduce the size of my pictures they get ragged edges to them. It doesn't seem to matter whether I use Netscape composer or PSP 5.0. I take a picture with a Kodak 210 or HP300 camera, when they are reduced in size and put on the web page, anywhere there is a staight edge we get a squiggly line. Check the example here:
I've tried setting the resolution on the cameras both high and low, it doesn't seem to matter.