As a file format you should either use PNG-24 or GIF which both support transparency (unlike JPG) whereas PNG-24 offers soft transitions (transparency from 0 to 100, GIF just an "on/off" transparency (0 or 100).
When using Photoshop, resize/crop your image first to the dimensions mentioned above and then choose "Save for Web & Devices" from the "File" menu.
In the new window that pops up, choose GIF or PNG-24 from the options on the top right hand side. Make sure the Transparency checkbox is checked.
Now save the file and upload to Publisher.