If you experience problems, you may want to try resizing the icon yourself before setting it.
The following dimension guidelines are believed to be accurate as of June 2007: Pidgin itself (for the chat window) will scale icons up or down to 32x32 for display in the buddy list and the infopane.
Alternatively, you could buy it on DVD, if available.
The mouse-over tooltip on the infopane also has her full-size buddy icon, for a quick fix.
Additionally, clicking the icon in the infopane should also enlarge it.
See the "Privacy" option under the "Tools" menu in the Buddy List.
Pidgin will try to resize and convert the icon as needed to fit within the constraints of a given protocol.
Sometimes this fails and shows you an error message.
In general, to maintain the aspect ratio, you should begin with a square icon.