Hello,
This is just a thought, maybe DirectX is looking at the image as though it was 32bit and you supplied a 16bit image or maybe It thinks you are using a 16bit image while you are providing an 8bit. In either case this would also result in half an image...
I hope this makes sense... I am VERY new to xbox programming myself. If I gave you my email address would you mind talking some more about doing 2D on the xbox?
Cheers!