I haven't used this myself, but I have seen this recommended as a free alternative by several people.
"Paint.NET is a photo and image editing tool designed for computers running Microsoft Windows XP or Windows 2000. It serves the digital imaging community as a free alternative to the standard paint application included with Windows. It brings powerful features to the desktop, a myriad of special effects, plug-in extensibility, and layer manipulation."
Homepage: http://www.eecs.wsu.edu/paint.net