Ok ,I finally found the solution:
"Q: Why can't I post "full size" images correctly? Why does WordPress always limit them to 500 pixels wide?
A: Your theme has not been updated to use the new image scaling features properly. WordPress 2.5 allows themes to specify the width of their main content area. The reason for this is that people were commonly posting straight camera photos and then getting annoyed when their images made the blog super wide. All you have to do is add one line to your theme to make it compatible. Add this line to the theme's functions.php:
$GLOBALS['content_width'] = 800;
Replace 800 with the maximum width you want to allow an image to be in the main blog area."
I put the line
$GLOBALS['content_width'] = 640;
...right at the top of my functions.php page, under the <?php tag, and that was all it took.
I'm baffled as to why they made this a hard-coded element and not part of the WordPress Web-based UI. Very odd choice. :-(