You don't need to shrink them. iPhoto shrinks them when it transfers them to the iPhone.
Yes people complain about this, but I have never seen a good photo viewing experience that used full-sized photos on a handheld(ie PSP, Treos). They are just not powerful enough or have the memory to do it like a full sized PC can. I like that it auto-sizes the pictures before transferring and thus letting me zip through photos very quickly.