.jpeg is a legal extension. Check here: http://en.wikipedia.org/wiki/Jpeg. Many file extensions have only three letters (Windows convention from of old), but not all. Both .jpg and .jpeg are legal.
What's happening here is that I take a photo with my iPhone and upload it using the WordPress 2 iPhone application. It gives it a filename that ends in .jpeg. (Incidentally, if I email the photos to myself they come through as photo.jpg, so the WordPress iPhone app creators themselves must be choosing the four letter extension.)
In the backend I have this code:
<img src="http://visualdash.files.wordpress.com/2009/12/l_1600_1200_680482fc-887e-4f80-903f-852ed19d08bf.jpeg" alt="" width="300" height="225" class="alignnone size-full wp-image-364" />
With the Monotone theme activated, I get this:
<img src="http://visualdash.files.wordpress.com/2009/12/l_1600_1200_680482fc-887e-4f80-903f-852ed19d08bf.jpeg?w=840" alt="" class="alignnone size-full wp-image-364" />
With Duotone:
<img src="http://visualdash.files.wordpress.com/2009/12/l_1600_1200_680482fc-887e-4f80-903f-852ed19d08bf.jpe?w=840g" alt="" class="alignnone size-full wp-image-364" />
Clearly, Duotone is somehow dropping off the "g" at the end of the filename. It may be trying to grab the last three letters of the filename for the purpose of processing the image (so it can set the theme colors to match) and for some reason this ends up chopping off any other letters. Who knows.
Anyhow, clearly something isn't working correctly.