I discovered what the problem was. Sort of.
I noticed that it was always crashing on the same same image. I have 1700 images, whenever it was displaying this one in the 3-1/2" simulator---crash.
I loaded the PNG image into photoshop (where it had been created originally). I changed from Indexed color to RGB and no more crash.
I have no idea why it only crashed on that one simulator. Preview, Safari, Chrome and Photoshop had no problem with the image.