yes indeed, .jpg is supported.
as gubes mentioned above, you may want to make sure the file extension is .jpg rather than .jpeg. what difference this makes i'm not sure, suffice it to say .jpg files always work for me.
check the names match perfectly, both the filename and the name used in the overview. that's the only reason i can think that it wouldn't be found.
are you using photoshop by any chance? what are the original dimensions of your image, in pixels? not the dimensions in your html file, the actual size. if the size was the problem, again as gubes points out, it would give a different error, but just in case...