dinki
have you set your image settings in admin -> config -> images ? it looks like you do NOT have proportional images and resizing on (i high lighted them in red for you) and so its trying to mush your current image in the settings there. also you need to SET your image sizes on that same page. here is a copy of mine so you know what i mean...
Code:
Title  	Value  	Action 
Small Image Width 	                       100 	 
Small Image Height 	                       80 
Heading Image Width - Admin 	          57 
Heading Image Height - Admin 	          40 
Subcategory Image Width 	            200 	
Subcategory Image Height 	            200 
Calculate Image Size 	                        true 
Image Required 	                                  true 
Image - Shopping Cart Status 	             1 
Image - Shopping Cart Width 	             50 
Image - Shopping Cart Height 	              40 
Category Icon Image Width - Product Info Pages 	        57 
Category Icon Image Height - Product Info Pages 	40 
Product Info - Image Width 	                 150 
Product Info - Image Height 	                 120 
Product Info - Image Medium Suffix 	     _MED 
Product Info - Image Large Suffix 	       _LRG 
Product Info - Number of Additional Images per Row 	5 
Image - Product Listing Width 	                 100 
Image - Product Listing Height 	                 80 
Image - Product New Listing Width 	       100 
Image - Product New Listing Height 	       80 
Image - New Products Width 	                100 
Image - New Products Height 	                 80 	
Image - Featured Products Width 	        100 	
Image - Featured Products Height 	         80 	
Image - Product All Listing Width 	           100 
Image - Product All Listing Height 	           80 
Product Image - No Image Status 	       1 	
Product Image - No Image picture 	        no_picture.gif 	
Image - Use Proportional Images on Products and Categories 	1 	
IH resize images 	                               yes 	
IH small image filetype 	                      no_change
IH small image background 	                  255:255:255 
IH watermark small images 	                  no 	
IH zoom small images 	                             yes 	
IH small image hotzone                         	     no 	
IH small image compression quality 	        85 	
IH medium image filetype 	                    no_change 	
IH medium image background 	                255:255:255 	
IH watermark medium images 	                no 	
IH zoom medium images 	                           no 	
IH medium image hotzone 	                   no 	
IH medium image compression quality 	      85 	
IH large image filetype 	                        no_change
IH large image background 	                    255:255:255 	
IH watermark large images 	                   yes 	
IH large image compression quality 	         85 	
IH large image maximum width 	                 750 	
IH large image maximum height 	                550 	
IH watermark gravity 	                               Center 	
IH zoom gravity 	                                  SouthEast
hth