Yes, it needs to be a power of two - IE 2, 4, 8, 16, 32, 64, etc., etc.
(it gets too repetitive to continue). It goes up to (I think) 1024, but I've seen it (don't ask where because I really can't remember) go to 2048.
EDIT\ Since nobody has said it (yet, and they probably don't need to, either) - WoW doesn't support PNG graphics on a Windows machine. Blizzard, for some unknown reason, gave PNG support to Mac's though. Why? Don't know (and I really don't care, either).
\EDIT