I forgot to tell you that she's a very cute little girl!
I saved the 5 MB jpeg and made 600x800 jpeg and png files from it (no other adjustments). I then used all the images (orginal, jpeg and png) files to make a photo album with MobiPocekt Creator (I did not load the images as screen savers but the results are similar except for the border around the images).
I'm attaching the photo album along with screen shots of how all 3 versions of image looked on my K2. All of the images look good to me, No splotchiness.