Can I displlay jpg or png images from SD card on a 3.2" display using arduino?
Using that library, no. Jpeg and PNG images are compressed. You would first need to decompress them. The Arduino does not have enough memory to do that.
You could display a bitmap file. It would be possible, if you have enough memory, to read the whole bitmap file into memory, and display it using drawBitmap(), since you are using a mega.
You could read the bitmap file one byte at a time, and determine where that byte corresponded to on the screen, and what color that pixel should be, and use drawPixel() to color that pixel.