Hi again Michael:
OK ... the problem is still persisting with Mod 1.1 installed.
To better show you, I've uploaded a jpg -- I've just taken 3 screen shots of 3 different blog posts with the goofed-up image; to the right of each screen shot is the way the image is supposed to show. **Note: when I refreshed the page, the image corrected itself.
To try and see if it does it for you in real time, here's my blog: http://the-artistic-garden.com/blog/
Please note that sometimes it doesn't happen. But the way I got it to occur today was by starting at the home page, and then every time i clicked "Older entries" link, that resulting page had goofed up images. Refreshing corrected it, as I said.
Every now and then, this issue does not occur, as when I clicked over to the "Newsletter Sign Up" page - that image appeared correctly.
And yes ... IE is quirky. Maybe IE8 will be a blessing to all of us!
Let me know what you think. (Can a simple line of coding correct this?)