Common issue.
The option to save as jpeg is not available:
Clear your Temporary Internet Files, then try again.
Suggestion:
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.