Just because you can drop full-sized scanned images into Word and push or pull them into the size you want and wrap the text around it doesn't mean that is the best thing to do. Since you're printing on regular paper with a computer printer and not on a photographic paper, a point John touched on should be considered. Make your image files a better size for the entire file. Reduce it to 75dpi (web display size) or as high as 200dpi if you think you may need to resize this up, but don't use 300 or greater dots per inch in a text file. You'll just jam up the works because Word reloads the whole thing when you save changes. It's slow.

Also:
Following your guidance, we opened the image saved from the web site (which is a jpg) in Picture It and saved it again as a jpg giving it a new name. We then replaced the offending image with the new one and the problem seemed to have gone away but later came back.

Every time you save and resave a jpg file you loose pixels. This is a file type in which each dot tends to relate to its neighboring dots and do some "averaging" (been a long time since I learned this, so I am glossing through it here). The point is, you loose quality with each save. I would go back to the original file (online) and save it as a GIF (this is limited to web-safe colors, so it can change the look a little) or a PNG--a much larger but equally stable format that uses all of the colors. Expect a 50K jpg file to become a 300K PNG file. Use that file if you're going to be saving this a lot, or even a little. Macromedia (Adobe now) made the PNG it's own a few years back, so you'll find the Flash program wants to load to show this file, but you can display it in any viewer or image editor, you just have to set your defaults so your computer opens it in the viewer you want.

SRS