ramones - from Performance tips:
ommon misconceptions ... Image formats (e.g. JPEG, PNG-8, PNG-32) affect the download size but have no effect on runtime performance (they are all decompressed to 32-bit bitmap on startup).
Setting an image format affects the transmission of the file over the network, but has no effect at all at runtime.
Tobye - From Best practices:
emory use ... Some designers are tempted to design entire levels as single large images, for example 10,000 x 10,000 pixels. This method should be avoided at all costs... (snip)
The section goes on, and you should read it all. In other words, as much as you might like to design your game by drawing the entire layout as a single image, you really shouldn't. From a memory use point of view, it's the worst way you can possibly design a game. If you cover your whole 10,000 x 8,000 layout with unique image content, it will use over 300mb of memory. This means you'll need a desktop with at least a 512 MB graphics card to even start the game up, which rules out a lot of common computers, and all mobile devices. And that's just the background before you've even started the rest of your objects and animations! You could end up with a game that won't run anywhere except the most powerful gaming systems.
For this reason, in practice nobody designs games like that. Use tiled backgrounds and creatively recycle a smaller set of images. Even pro commercial games use that approach!