Hi Poolman,
I'm sorry if I'm not explaining it correctly so please bare with me.
The reason that VSD is looking for the images in My Pictures I believe is because originally those images were in the My Pictures folder when you made your website, as I mentioned before VSD makes a log file of everything you do to your website whether it be removing or adding to. It logs it's location and keeps it. So when you make a website in VSD , if you move, rename or add it updates that log file. Same with the log file on your server.
This has caused you to see an error message stating it cannot locate that image if you renamed and or moved you will most likely need to re-point the location of that image until you have them all found.
If you delete the images from My Pictures you will again get an error asking where they are, however you may overcome this by pointing back into your files folder, any error you recieve you must re-find that image when the window pops up asking for it, or it will place a colored square object in it's place. this is all due to the fact of the log file.
here's an example of what I mean. If i were to use an image located in My Pictures folder, and then take out later and move it to say images, I will get an error say it cannot be located as you have, so now I must browse for that image in images so it will correct itself in VSD., once you make a website it's best to make sure you will never move them or you will come across this problem agagin and again. to be continued: