Are you sure you are not trying to upload it as an avatar? That is limited to 60x60 pixels and is the small picture or graphic that appears under your name at the left in each post. The siggys we use are all assorted pixel sizes (yours is 400x225)and the one I made you, like you said, is within the 25K limit...

The image goes in the same box where you put your quote: user CP, EDIT PROFILE and that siggy box is about half way down on the right. The edit options page is where yu do the avatar and there is alos a box there that you can mark to "allow signatures" but it looks like you already have that because of the quote