It's best to add these types of photos to your slideshow manually, Bluestar, for this very reason. Although you can also manually adjust the keyframing after too.
But two things:
1) If you're using the Organizer's Create/Slide Show tool, don't output your slideshow as a WMV. Instead, choose the output option to Send to Premiere Elements. (Have a Premiere Elements project open and waiting for it.) That way, when the slideshow appears on the Premiere Elements timeline, you can right-click on it, select the Break Apart option and then do any last-minute tweaking or fixing you need to do.
2) As I say in my books, make sure that any photos you use in a Premiere Elements slideshow are no larger than 1000x750 pixels in size. Otherwise, you could run into problems later. I explain why in detail in my books and in the FAQs to the right of this forum.
What app would you recommend for reducing the pixel sizes of a jpg?
I can easily do it with Microsoft's Paint by typing in the required shrink percent but it seems to affect the quality more than I would have thought.
Or do I have to use Photoshop?
Well, shrinking the photo is going to reduce the resolution. There's no way around that.
As the article I linked you to above says, Photoshop Elements includes a batch resizing tool.