These are the accepted file types:
.jpg/.jpeg
.gif
.png
instructions here > http://en.support.wordpress.com/images/
troubleshooting images here > http://en.support.wordpress.com/images/troubleshooting-images/
more details about the options for uploading images:
http://wpbtips.wordpress.com/2009/04/26/images-the-three-link-options/

Prior to uploading any image into your blog, regardless if it’s a header image, a featured image, an image in a post or page, in a Post format (Gallery or Image), an image for sidebar display in an image widget or a text widget, you can optimize and re-size it in either a desktop image editing software or online image editing software to fit the space you intend to use it in. By undertaking proper image preparation first you will get the best image quality, won't be wasting your media storage space, and won't be wasting you time troubleshooting.