There is no particular image size that you're supposed to use, and you're thinking of 128x128 pixels. As for the filetype, you should be able to use both .ico and .png format files.
Right after I posted I realized it was 128x128. I thought it had to be that size. I guess not, I forget you can use .ico files as well. I would suggest trying MobyDock if the problem doesn't go away pe1369. It has a little more options then Y'z Dock has.
I dunno if this will help, but give Aqua Dock a try - exactly the same program, but it's being developed by "Anonymous" ;) D/l it & compare the menus to see what I mean. Maybe AD will solve your problems?
I don't think so. I actually had Aqua Dock first, and it suddenly started this behavior. Which is REALLY pissing me off. So then I tried Y'z dock, thinking maybe a slight change in programming or whatever would clear it up, but it has the same problem. I guess I'll just go try MobyDock, as Pyro_ suggested.