IIRC, sending an email in html format doesn't require the mailmerge main document to be saved in the same format. In any event, you cannot rely on the recipients viewing HTML emails in that format or that they will appear the same on their PCs as they do on your's.

Ordinarily, you can constrain an image's dimensions by inserting it into a table cell whose height and width are fixed to those dimensions. I assume that works with mailmerges too.

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Cheers,
Paul Edstein
[Fmr MS MVP - Word]