
To our big surprise, this was not due to any bug in Picasa but because of the default settings of the program outlined below:
1. Picasa will not import pictures in PNG and GIF format unless explicitly told.
2. Picasa auto-hides images in the Library View that are smaller than 250x250 pixels in size.
Not sure why Google decided to hide smaller images or GIF/PNG pictures in Picasa by default, but it is fairly simple to fix these factory settings.

» To import GIF or PNG format photographs in Picasa Library, goto Tools, Options and click the File Type tab. Place a tick next to the image / video formats that you want to import in Picasa Library.