In Word 2003 and earlier, on the top toolbar Insert|Picture|From File lets you insert a picture. The initial format is "inline" but you can "justify" (Ctl+L puts it at the left, Ctl+R at the right, and Ctl+C in the center. This still leaves no text beside the picture.
In Word 2003 and earlier, you can click on View, click Toolbars, then click "Picture" and you get a single toolbar. In Word 2002 the toolbar would pop up whenever you click on a picture that you've inserted, and disappear when you click off the picture. It may have to be turned on/off manually in Word 2003(?).
There are 14 or so icons on the Picture toolbar, but the one that's really most useful is the one that looks like a "paint bucket." That one gives you what amounts to a "Picture Format" menu with Five tabs.
The Arrange tab has icons to align the picture inline, left, or right, and to flow text over or behind the picture. The advanced button lets you lock the anchor so it doesn't squirt off elsewhere when you edit the rest of the document. (If you "lock anchor" it's almost NEVER necessary to use a text box or a frame in Word.)
The Size tab lets you resize the picture to fit the way you want it.
In Word 2007, there IS NO PICTURE MENU. As best I've been able to figure out, it's necessary to open FIVE separate menus from different submenus (at least one is three levels deep) splattered around different sections of the "main toolbar" (and the separate sections have NO LOGICAL connection to "Pictures" that I can see) to do what was on two tabs of a single menu since ca. 1985 in Word for DOS.
The "Left" and "Right" buttons no longer refer to where the picture goes, but now refer to where the text goes relative to the picture. The same "paintbucket" icon (now pastel and fuzzified) now changes font color and has nothing to do with pictures.(?). All those improvements make it easy for IUEs (Idiots Using Emoticons) perhaps, but impossible to use for anyone who just wants to get a document built to support publishing a book.
(There also is no longer a single "Table" menu, with three separate illogically scattered menu locations needed to convert text to table, convert table to text, or do some formatting of a table. There probably are more "other" menus, but I haven't found all of the functions that used to be on the single Table menu.)
My only reason for my having Office/Word 2007 is that WinXP patches have gradually decreased functionality in my old (Office XP = Word 2002) version, with various functions simply "ceasing to work" or "not working as expected." Thus far, the Office 2003 that Lin has seems unaffected(?) - but she doesn't often use a lot of features that I did.
If an "older" version of Publisher is what's not working, a similar "progressive improvement" might be suspected(?).
A "manual" visit to "Microsoft Update" (it should be on your Start menu) and selecting the "Custom Install" option will let you look at "optional updates" that might include Office patches that you need to keep an Office program like Publisher compatible with new Windows security patches; but Microsoft obvously is NOT CONCERNED if patches break anything prior to Office 2003. (Of course they surely wouldn't crumble the old stuff on purpose.)