There are several complaints in a Google Web Search Help thread that users cannot upload their own iGoogle custom themes. iGoogle allows users to pick a theme from a set of pre-made templates or upload their own theme for their iGoogle home page.
It seems like several people are having issues uploading their own theme.
Google employee, Jem, has been trying to help these users figure out the issue. But for a few days now, Jem seems to be at a loss.
For now, people are sharing the images they want to use for their custom theme and hopefully, Jem will be able to figure it out.
Forum discussion at Google Web Search Help.