Don't know if it works, but this is what Lotus Support says. You might also try browsing the Note.net forums, there seems to be alot of info there on how to do it.
http://support.lotus.com/sims2.nsf/eb5fbc0ab175cf0885256560005206cf/d04ba48a898051a08625693c0053a1d8?OpenDocument&Highlight=0,NDL...
Rule of thumb Photos should be .jpg lineart or graphics should be .gif. When you save the .jpg try lowering the compression on it if your photo editor software allows you to. If you compress it too hard it will make the photo grainy or funky.
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