The colors come out wrong when you use different images because they use additional colors than the supported ones. By default, the software supports BMP file format, but you convert a PNG to BMP, the result might not be the same because of color depth. Try using images that have a low color depth and the program will display them correctly.
You need to adjust the dimensions of the photo you're adding, because the application doesn't know how to fit the image properly. Simply resize the picture to fit the area and it should appear normally.
You can use an application like XnView to resize the pictures.