We've created this Forum Thread with some workarounds and advice to assist you in publishing you ebook.
Suggested Image Resolution Settings
In order to create a high quality printed product, we recommend that you upload images with resolutions of 300 dpi or higher. Image resolution can be adjusted using most image editing software programs.
Note: Image files greater than 10MB cannot be added to photo books or calendars.
Lulu adjusts image dimensions (and resolution) depending on the size of the frame into which you place your picture. For best results, you should crop or resize images to closely conform with the size and orientation of the frame layouts you intend to use in your photo book. For example, a picture oriented in a portrait format may not resize properly in a landscape oriented frame.
For more information, see, What is the orange triangle with an exclamation point?