I have been looking some more into this and found the ImageUploadTypes should be a paramater of the package itself.
I've set that up via apm and still no joy.
this is the entry in news.info
<parameter datatype="string" min_n_values="1" max_n_values="1" name="ImageUploadTypes" default="image/jpeg,image/gif,image/png,image/jpg" description="CSV of acceptable MIME Types for Image Upload in News package"/>