Hi,
The Olympus compatibility chart on their website says that your camera works with type M and M+ sizes 256MB - 512MB.
The chart also says 256MB - 512MB for type H and 16MB - 512MB for standard xD cards.
It looks like the largest size xD you can use of any type is 512MB.
The D560 is quite an early digital camera and it is not unusual to have card size limitations.
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