There are so many phones available that it is hard to say a specific size. I use what Google recommends for mobile sites - responsive web design. That way no matter what odd size someone is using, they still get a good user experience. I start with 300 pixels as the minimum width (iPhone 3G has a 320 pixel wide screen) in my media queries and use fluid layouts that size up with percentages.
Yes, pretty much all smartphones support PNG files, and the majority have good browsers that support CSS2 and even some CSS3, so you can get fancy with gradients and rounded corners if you want. Just try to limit extra details like that so that the site loads quickly.
Elaine, a.k.a. RedScooter - coder, designer, and tinkerer