Why is it not a good idea? A lot of other forums shrink the image to an appropriate size if it's too big and I think that would be a good feature here.
OP suggested 'auto crop' which isn't a good idea but your suggestion, 'auto shrink' is good.
Yes, I also support the idea of 'auto-shrink' .. the crop will ruin the image (avatar) instead the auto resize or shrink can adjust the image (120*80 px).