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This is a microsoft issue.
From the knowledge base:
Microsoft Office 2003 users might find that when they insert an image file into a SW2004 or SW2005 file, that the OLE (Object Linking & Embedding) link symbol is produced instead of the image
If the same problem occurs in other MS applications such as WordPad then it typically is not a SolidWorks issue, but more of a system problem.
This is a known issue within Office 2003 that not only affects SolidWorks but all other applications that utilize OLE automation. With the release of Office 2003 Microsoft does not install or support the "Microsoft Photo Editor" application as part of the Office installation.
Microsoft Photo Editor has been replaced by the Microsoft Office Picture Manager 2003 which seems to cause issues with inserting JPEG files during the OLE insertion process.
To view more information about this issue please refer to the following Microsoft knowledge base articles:
Photo Editor Features Are Not Available in Picture Manager KB # 827740:
Images That Are Stored in OLE Object Fields Do Not Appear Correctly KB # 832508:
As mentioned in Microsoft KB #832508 a work around to this issue is to install Microsoft Photo Editor, which is available as an Office Tool in Office 97, 2000, and X