Hi Deborah,
You don't actually need to "resize" the picture for testing. It appears all the images are currently stored at inmycedarchestdesigns for loading. You can let the code do the resize for display (per my width and height substition code). If you finally get the redesign locked and want to resize the template picture(s) to decrease the amount of data to load (and time) for the page, that's probably a better approach.
Any permanent (to template) images should be done as you have them coded. The unique pictures for each item for the listing should use the Auctiva tags, i.e. give you the flexibility to swap images for each listing. Hope that makes sense.
On "best method" question, the Auctiva template editor is used to build or customize templates for use on Auctiva. Look at the lower right on the Listing tab page for "Custom Template". The "Create your own Template" is where you'd start creation for a new Template based on this design. You can also look at the "Customize an Auctiva Template" for ideas on how Auctiva creates those stock templates and great examples of how the tag system they've created works.
Danno