Still on CM v5.0.5.3? Are you using the stock messaging app? What's the original file size of the image you're trying to send?
There's an known issue with the image resizing in the stock app, and I don't think it was addressed in CM v5.0.5.3. Seems like the devs got it fixed starting with v5.0.6 test2. I outlined the bug here about halfway down this post after the Singtel APN settings (the 300k limit applies to AT&T also):
http://www.nexusoneforum.net/forum/n...html#post41895
I'm attaching the very latest Mms.apk from CM v5.0.6 to this post, but I had to change the extension to zip to attach it. This version appears to have fixed the image resizing issue. If you'd like, download it, change the file extension from zip back to apk, move it to your Android SDK dir, and push it to your phone using the following commands:
adb remount
adb push Mms.apk system/app
adb reboot
Let me know if that works for you...
Other options
Maybe try taking a picture at the smallest size in the camera's options...I think the lowest setting is 1megapixel. The resulting file should be in the 150k range. Now try to MMS that image...any luck?
Finally, try to install Handcent and send an MMS that way...it may be a little better at resizing and following the 300k rule if you adjust the app's settings properly.