Answer
This question was answered on October 6, 2005.
Much of the information contained herein may have changed since posting.
Changing file extensions (types) isn't going to make your picture smaller. However, there is a way to compress the file(s) while still allowing them to be inserted. First, highlight the picture(s) you wish to compress. Right-click on (one of) the picture and select properties. Select the Advance button under Attributes. There should be four check-boxes displayed, one saying 'Compress file to save disk space'. Check this box and select OK, your file name's font should change from black to blue to state that the file is compressed. This should cut the size of your file in half!
Isn't Windows XP great!!