Ok back from geek city (computer room) answer.........
The option to save as jpeg is not available: Clear your Temporary Internet Files, then try again.
Go to IE/Internet Options/Delete Files. Also in Settings change the amount to 40 MB. This will help in preventing the index files from becoming overloaded.
If that doesn't help check your settings here: Start/Run/Regedit
HKEY_CLASSES_ROOT\.jpg. For Content Type, it should read "image/jpeg". HKEY_CLASSES_ROOT\.jpeg. For content Type, it should read: image/jpeg
HKEY_CLASSES_ROOT\.gif. For Content Type is should read "image/gif"
If it already set to that, go to Start, Run and type in: regsvr32 /i shdocvw.dll, regsvr32 /i shdoc401.dll,regsvr32 webvw.dll and regsvr32 thumbvw.dll (for upgrades).
NOTE: If you are using AOL:
This behavior may occur when AOL's graphic compression option is turned on. When this option is on, the images are saved as the .art file type.
Connect to the Internet through AOL, and then visit the following AOL Web site:
www.aol.com. Click My AOL. On the Settings menu, click Preferences.
In the Preferences dialog box, click Internet Options (WWW). In the Internet Options dialog box, click to clear the Always Compress Graphics dialog box. Click to select the Never Compress Graphics dialog box. Click Apply, and then click OK.
Hope it helps