How To Create Your Very Own Bug Graphics for Pet Bugs on iPhone:
Step 1:
Choose one of these templates as a starting point for your creation. Your picture should be 128 by 128 pixels in size and have a uniform background color.
Right click on an image and choose save to a directory on your PC/Mac.
or 
Step 2:
In any graphics editing software edit the graphics in any way you like. Here's a colorful example:
Step 3:
Save the image preferably as a .png file or a high resolution .jpg if .png is not an option.
Step 4:
Put all your bug images in a common directory. Then use iTunes to sync the images to your iPhone or iPod touch as though they are photographs. You can choose to sync a directory or if you are on a Mac you may wish to add the images to iPhoto first then import the bug images from an events folder.
Step 5:
Run Pet Bugs Version 1.1.1 or later. Choose the bugs option from the menu, then select the photo icon in the bottom left of the screen. This opens the photo selection window. Select a bug image from your photo library.
You should now see your custom bug appear in the last bug slot, (last one on the second row). Here's how our spotty pink bug looks at this stage.
Step 6:
Select this bug as the active one and hey presto it will appear as your selection in the application. As shown below... you can still free scale your bug as you would with any of the default bug images.
Your custom bug image is not retained when the application is closed. The next time you start the app the original default bugs will return. So you currently have to select your custom image again whenever you restart the app.