Have you tried switching between views in Word? I've no experience in Word 2003 but I know that, in previous releases, you'd see some types of entries into the document being displayed differently if you had the view on Normal, Online, Page Layout, etc. You might find that the view that you're in doesn't display pictures intentionally or because of a corrupt view on your PC or because of a bug.
In fact, on that note, you may want to download the latest Office 2003 service packs if you don't already have them. There may be a problem that has been fixed relating to this.
http://www.microsoft.com/downloads
Hope that helps in some way