Thank you for your responses. I heard from some other authors, who have JPEGs that are much larger than mine. They said they had no trouble using them.
I've been playing around with this recently and, if it's for inside the book you can insert much larger images. They'll obviously be resized for the eInk Kindle, so be careful with text which might not resize well - but if you consider that the new iPad is going to be about 2000 pixels by 1500, then big images might be more propular in future (rumours are that Amazon will go to similar ppi with the Fire at some point).
I've managed to squeeze an image that was 1700 pixels wide into a book, and uploaded it. When I download the converted eBook, the image is still 1700 pixels wide on Kindle for PC, so it doesn't appear to have been resized physically.
The difficulty is to keep down the file size for such large images (I did read that allowed file size has been increased to 256kb, but that they still get downsized under 127kb when converted).
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