As per the docs, I don't see anything that should cause this. But reading the docs on profile photo specs
The supported sizes of HD photos on Microsoft 365 are as follows: 48x48, 64x64, 96x96, 120x120, 240x240, 360x360, 432x432, 504x504, and 648x648. Photos can be any dimension if they're stored in Microsoft Entra ID.
This explains why the square photo will work. My suggestion is to use other imaging tool o resize the pic to any of the above sizes and try again. If the issue persists after you optimize the photo size to standard, then reach out.