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Yes I had the same problem with XOOPS default, the x2t theme does not have this you can put any size of topic image in without having to do hard returns to fill the overlap.
What is your default template for the theme? it is your default template which is controlling the look of the news module
In XOOPS default template the code for "news_item.html" --which is the news items of front page looks like this:
<{$story.title}>
<{$lang_postedby}> <{$story.poster}> <{$lang_on}> <{$story.posttime}> (<{$story.hits}> <{$lang_reads}>)
<{$story.imglink}>
<{$story.text}>
END
In x2t the "news_item.html" looks like this:
<{$story.title}> |
<{$lang_postedby}> <{$story.poster}> <{$lang_on}> <{$story.posttime}> (<{$story.hits}> <{$lang_reads}>) |
<{if $story.align == "left" }>
<{$story.imglink}> | ![<{$lang_printerpage}>](images/print.gif) ![<{$lang_sendstory}>](images/friend.gif) |
|
<{$story.text}> |
<{else}>
<{$story.text}> |
<{$story.imglink}> | ![<{$lang_printerpage}>](images/print.gif) ![<{$lang_sendstory}>](images/friend.gif) |
|
<{/if}>
<{$story.adminlink}> <{$story.morelink}> |
End
The point is, you will find that whatever your default template is--will probably work with larger images with "tables" rather than "divs" (i am no expert perhaps a coder has a simpler way)
you also will need to change news_article.html which is the full article view file
there is a tutorial on the wiki about templates