Why is this particular image causing my application to crash with an OutOfMemoryException?
As far as I can tell your problem corresponds to a known but currently unconfirmed bug in WPF, see Microsoft Connect. Funnily, the issue has been marked as duplicate, I'm however unable to find the other issue. I wouldn't be surprised if it was internal only...
Workaround
If your problem really is connected to the bug above, then there is an easy workaround: Just convert your palette-based PNG8 to a non-palette-based PNG24. This can be done e.g. using Photoshop or GIMP.