GIMP is also a popular free choice.

As far as squash and stretch go- you can get quite a bit of jiggle right in code using easing curves to manipulate scale (or other properties). Though if the thing you are trying to manipulate is something complex like a humanoid image or something, you are probably better off using an image editor to do it.

I hadn't thought about doing a 3D render. That may be one way to go. But isn't Blender a steep learning curve?

If you wanted to render a full 3D scene using Blender, you would indeed have a steep learning curve to climb; using Blender for some thing this small won't take months of learning.

Just be warned, the squish and stretch is one of the basic principals and some animators go to amazing lengths for it.

When looking for a tutorial, find some thing simple where the animator isn't using a rig.

If you want you can send me a message and I will walk you through it.

As kburkhart84 said, you could completely texture the model and render the finished product. This will require learning a few more things, however it's easy to learn if you know what it is you want to do.

How easy or hard it is depends on how far you wan't to go.