I didn't know jpgs could be animated! Learn something new everyday I guess.
Check out my post on this thread for my suggestion. Sorry for being lazy
http://www.wayofthepixel.net/pixelation/index.php?topic=9733.0
Welcome to the forum.EDIT: Ack! If I download your image I get a gif, but on this website it says it's a jpg. I guess tinypic is playing funny with me. Almost got me, too, since I don't get image filtering on pngs/bmps/gifs but do on jpgs. I took at look at your image after downloading to my harddrive. My biggest crit would be that you're just cutting off pixels when your birdie starts bobbing.
If something gets smaller heightwise, then this must be made up by an expansion along the width. Your image is only shrinking in height without growing in width. Also, if you have one of those rubber stress balls lying around go take a look at what happens to the highlights/midtones/shadows when you squeeze it. Your H/M/S aren't really changing to reflect the changed surface like they would in real life. Because of these two things, your animation looks like the top half of birdie's head is just moving up and down.