I found this Apple Knowledge Base article while looking for another iWeb-related problem. In it, Apple states:
When you added images to your page they would be converted to PNG format images when published. PNG is a format which allows for image transparency to be displayed in your web browser. However, the downside is that this image format takes up more disk space than a compressed JPEG.To take advantage of this new feature in existing sites, you need to republish all of its pages. To to that quickly, hold down the Option key and Publish All to .Mac from the File menu.
Enhancements in iWeb 1.0.1 allow for most types of images and photo page thumbnails to be published as JPEGs where possible. This translates into faster page loads when people visit your website.
Mac OS X Hints
http://hints.macworld.com/article.php?story=20060222091235433