For a quick fix, the solution above helped.
Just like others, I searched high and low for some sort of workable adjustment. Unfortunately I couldn’t find any and decided to try the above, with a little tweak of my own on the side.
Works for WordPress 2.1
Step 1
As stated above, in wp-admin > admin-functions.php file look for …
$max_side = apply_filters( ‘wp_thumbnail_max_side_length’, 128, $attachment_id, $file ); [line 2118]
By changing the amount, it adjusts the thumbnail generation [when thumbnail is chosen to be sent to editor], that appears on your post page.
I continued to play around, and realised that the thumbnail that appears in your Upload/Browse section doesn’t change accordingly.
Step 2
In wp-admin > upload-functions.php file look for …
list($width,$height) = wp_shrink_dimensions($attachment_data[‘width’], $attachment_data[‘height’], 171, 128); [line 15]
Since I was antsy and wanted this changed, I changed the amount above (172, 128) to something smaller like 50, 50. And it worked. So now I have smaller thumbnail views in the Upload/Browse section.
Everything seems fine on my end, so if you guys wanna try that out, be my guest.
BTW, thanks luftikus143 for the note above.