The header image on Twenty Eleven is 1000 x 288 pixels and that’s not small. Not everyone will be viewing your blog on a big monitor. For themes that support it, the Appearance -> Header page now uses what we call Flexible Headers. With flexible headers instead of being forced to use a specific size you can now use images that are taller or shorter than the suggested size for that particular theme. http://en.support.wordpress.com/themes/custom-header-image/#flexible-headers
What was going on is that the sidebar has a fixed width, so images that are wider are automatically downsized to fit. The image you had originally inserted wasn’t a good choice. You could use it after you edit it in an image editing application to place the text below the photo instead of next to it.