Since a lot of people are having troubles with this, I thought it would be helpful to create a tutorial. I'll be using paint in the tutorial as everyone has it.
--Firstly grap your picture (make sure its 240*320 - thats the usual zune dimensions)
--You then need to rotate it 270 degress
--Once the picture is rotated place it in the top left corner, so that the edges are meeting the end of the canvas. Now all that is left is to resize the canvas.
TAKE NOTE the dimesions are now 320*240
--It should now look like this
And on the Zune
Hope thats some assistance