Q: Can I create a custom image size with Create Thumbnail Images?

Some potential alternatives, and guessing at what problem you're working toward solving here...  The graphics tool Acorn from Flying Meat does quite nicely, though if you're on OS X 10.5.8 then you'd need to use an older version of Acorn; Acorn 1.5.5 for OS X versions prior to 10.6.  There are some free or shareware packages around that might interest you, if you're on a budget.  Seashore is one, and there's GIMP, too.  Whether those will run on 10.5, I don't know.

You're using Automator, aren't you? So why not use Scale Images instead of Create Thumbnail Images?

My pleasure.