Hi - drag the photo from iphoto to the desktop (its easier!). Click on the photo then click "Tools" in the menu bar at the top. Click "adjust size". It needs to be no more than about 195kB so fiddle with the numbers so the size shows up below this size. Then save it again on the desktop.
Then when replying, click on go advanced, "manage attachments" and "choose file". Choose the file then "upload" and close the window. Then submit reply and you're done! Phew! HTH!