There's a modified MMS apk available that allows you to change the user-agent for sending/receiving images as another device such as an iPhone which is fully supported by almost every network.
And to answer your question, it's the network. The default MMS apk resizes large images already it's just that the network doesn't know what a 'Nexus One' is and treats it as a 1990s camera phone with a screen size as big as one of the icons on the home screen