Yes, I see now what you mean. I didn't expect that jpg conversion would hurt a greyscale image like that.
I then retried this using a tiff file instead. I found that the GD library can read jpgs and pretty much only jpgs. It errors out on PNG, GIF, and TIFF.
Looks like I'm going back to using the Imager module so I can read TIFFs.
Thanks again all!