I had this problem in Word 2000 as well, and your solution is correct.
Uncheck the show picture placeholders in Tools, Options.

"petexp56" wrote:

THANK YOU THANK YOU THANK YOU THANK YOU THANK YOU THANK YOU THANK YOU THANK
YOU THANK YOU THANK YOU THANK YOU THANK YOU THANK YOU

Problem Solved.

"garfield-n-odie" wrote:

The "picture placeholders" box should NOT be checked.

petexp56 wrote:

I recently purchased a Dell latitude 610 laptop running Windows XP
Professional. I installed Microsoft Office XP Professional Version 2002.
When I open a Word document that has a picture (JPEG) inserted in the
document, the picture does not display on the monitor, only an outline frame
appears. I can't move or edit the picture. If I right click on the picture
and open the Picture toolbar, most of the icons are grayed out. If I print
the document, however, the correct picture is printed. The picture also
shows up OK in the Print preview.

So far, I have uninstalled and re-installed Office. I have updated both
Windows XP and Office with the latest updates from Microsoft. I have gone
into Control Panel-Add/Remove Software-Microsoft Office XP - Change -
Add/Remove Features - Office Shared Features - Converters and Filters -
Graphic Filters and and set all of the filters to "Run all on my computer".
In Word Options-View-Show I have checked all of the boxes except Bookmarks.
The Picture Placeholders box is checked. The problem persists. Any
suggestions you have are appreciated.