I am using VSD 7.0, I have made a few changes to some of my images and when I tried to FTP the site, I get an FTP popup that says a specific file was not found. It is trying to access the file in the temp\vsd_tmpdir..... location?

Try saving your site then closing VSD and reopen it and choose re-sync site in the publishing options.

Same thing. When I hit re-sync the same pop-up comes up.

On a good note, the site seems to be working fine and the image that it says it can not find is there.

Did you happen to move the image on your computer after adding it to VSD? You can add images from all over your computer to a VSD site. But then if you move one or more of the images from the original location it creates errors. The ideal way is to create an images directory within the directory where you are saving your VSD site, move all your images there, then add them to your VSD site. That way all your images stay in one place.