You need a 32-bit Bitmap file type, with a square resolution of a power of two, such as 256x256, 512x512, or 1024x1024. Anything higher, and the detail starts to become unnoticeable in-game. If you don't have that, then the game won't recognise it. Also, make sure you have Auto-Detect turned off when you're saving it.
If you have a file name with a period in it (full stop, "."), then that'll mess it up. I did once end up with a .png image detected as a .LOL file because of the name I'd given it. You can get around this by simply renaming it, and adding a .bmp extension at the end.
