Howard,
we had the same issue when upgrading to XP. We resolved it by using Kodak Image from Win98 (although this has been pointed out by others as not an advisable thing to do).
The only feature of Kodak that we needed which we could not reproduce using native VFP was the ability to rotate images - which I believe is slated to be part of VFP8.
On a related issue, does anyone have example code that provides zoom functionality where the image remains centred in the view port rather than anchored by the top/left corner?