Hi,
Yes, the issue is the size of the image; you're coming up against a resources issue.
Resources, i.e. memory, get used up on a session basis by the objects in your project and background features such as caching and building the Undo/Redo buffer. You might find that if you open your project and delete the original image and save the project, then close SD7.2 (which clears any built-up cache and the Undo/Redo buffer, freeing as many system resources as possible), then restart SD7.2, open the project and then insert the image, it might work. But it might not, because the image is really, really huge and handling of huge images is not what SD7.2 was designed for.
Support of images is intended to handle reasonable numbers of reasonably sized images e.g. to add a company logo to the title block that surrounds your drawing and, generally speaking, it is not good practice to use very large images (bitmaps) in CAD drawings.
SD7.2 is a vector-based CAD engine, like AutoCAD, in which objects like lines are described mathematically; any straight line, for example, is described as a start co-ordinate and a vector (direction and length). This is very efficient and means that any straight line can be any size and viewed at any resolution absolutely faithfully with just 3 parameter values (start, direction, length).
Bitmaps, by contrast, have to describe each individual pixel in a line so they are inefficient by comparison, they are resolution-dependent (zoom in and they go 'jaggy') and they are hard - effectively impossible - to edit. This is why you should avoid, wherever possible, the use of bitmaps as major elements in your drawing.
The JPG format has the added drawback of using a lossy (rather than loss-less) compression system so you will see noise and artefacts in the image, so JPG would be my last choice as the source for line art in my drawing.
The best solution is, therefore, to avoid bitmaps if you can - especially JPGs - and use instead a vector-based source if you can get one. In order of preference the source would be DWG or DXF (ACAD formats) or vector PDF, which SD7.2 can import and convert to internally-handled vector objects.
If a bitmap is your only option, for example you only have access to an original hardcopy print so you have to use a scan of that page, you should re-sample the scan using the image editor of your choice to optimize its size. Remember that square law applies so if you halve the height and width of the image it will contain one quarter of the number of pixels and therefore use about 75% fewer resources.
Alternatively you could try some commercially available third-party applications to convert the JPG into DWG and then import that. The effectiveness of such applications is variable and I'm afraid we can't offer any recommendations here.
Apologies for the length of this answer but i hope the background information it contains is useful.