The Gimp kicks butt for image manipulation, and it is free and open source. It's a port of the Unix app, the interface takes some getting used to.
*Nix:
http://www.gimp.org/
Win32 port:
http://www.gimp.org/~tml/gimp/win32/
The online book:
http://gimp-savvy.com/BOOK/
I'll send in my image of Mt. Bushmore that I created with the Gimp.