If your jpg is just 106K post production, then it's impossible that Xtreme created it too large 'in email'. As Egg suggests, there's something going on with Outlook.

As a test, send the same email without the image. How big is that?
If you are using a html template (stationary) it will come with it's own baggage.


EDIT: You posted as I was replying.
Don't use HTML formatted email. Not everyone can see/receive this anyhow.
Use plain text instead.