It’s actually not being cropped. The images you’re posting are wider than your main content column (which is 455px) and the right-hand portion of the image is being hidden “behind” the sidebar. The fact that they look square is a coincidence regarding the height of the images and the amount of width that ends up being visible in the content column.
1) Change your layout. If you have the ability to tweak the CSS you can probably widen this, or pick a new one from wordpress.com (I’m not sure how much control they give you)
2) Post smaller images :\
Wait, but why suddenly? I am posting from the same picasa account to the same layout and the ones from last week are fine! Does this mean Picasa changed something, maybe? Or I need to scale them down in Picasa?