photoshop.
more specifically, i select a part i want to use while holding down shift, to make it a perfect square. then i crop this part (deleting the whole rest) and change the picture size to 100x100 pixels.
after that, in case you are interested, i usually use the sharpen-tool and sometimes brightness/contrast and lighting corrections, which all help to make the picture look more clear and defined, even at this small size.
also, borders! they are awesome. i make them by selecting 1-pixel wide of the pic on every side and color it black (duh ^^) then select 1-pixel wide again just next to that first simple border. i color this 2nd selection black too, but on another layer, which i then reduce to somewhere between 15% and 50% opacity. that gives the border a softer look and makes the picture stand out better.
lastly, i use the save-for-web option to save it as jpg with somewhere around 70-95% quality to put it just below 10kb (mmo-champion now allows 20kb, but there isn't really any reason to make it bigger unless it's animated. the quality loss is literally unnoticeable)