Everyone can stick to the specifications, you should too.
"everyone's pictures are like that", that statement is BS.
I agree with Baloo. In fact, how would the photographer know whether the photo size created problems or not? Would the customers take the trouble to come back and inform the photographer? Probably not, so the photog is really in no position to assure you that there were no problems. Just trying to get away with their inability to do an apparently simple job.
Even where the embassy accepts the photos, the folks in Sydney who make the final judgment on the photos have been known to reject them -- causing a long delay. So I'd rigorously follow the specifications.
Did you try other photographers, explaining in advance the size problem? That way, if they cannot deliver, they cannot charge you.
Can your computer program reduce the head size of the photographer's photos, or just the ones you take with your own camera? Of the former, ask the photog for the disk, reduce the size yourself, then get the photog to print out. If the latter, then try taking a photo yourself, and if the quality is satisfactory, get a photog to print out.
This is a lot of running around for a simple transaction, and one of many examples of details that are much more difficult to accomplish abroad than in Canada.