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Wayne replied on October 30, 2009 20:15 to the question "png image quality reduced when sent in email." in Microsoft Corporation:

Not exactly, but somewhat. When sending a message, my system uses MS Word to compose the email, and that seems to work fine with the PNG files. When reading an email, though, it uses Outlook's built-in reader, and that does not seem to support the high-color PNGs so it down-grades them. There were other settings that affect image compression, and what format the mail is sent in (plain text, rich text and HTML), although I don't know if any of that will affect your problem. As for my issue, I have just dismissed it as a fault of Outlook's failure to properly support PNGs.

I seem to be able to send, receive and forward JPGs and BMPs just fine. Only PNGs are giving me trouble.

Hope this helps a little. Feel free to post back here if I can help more with your issue.

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Wayne asked a question in Microsoft Corporation on August 11, 2009 18:49:

png image quality reduced when sent in email.
When inserting a png file with alpha channel transparency into an email in Outlook 2003 using MS Word 2003 as an email editor, the image looks fine, but when I send the email to myself (or anyone) and view it, The image color quality is downgraded, causing a thatchwork dithering pattern over the whole graphic.