Take a look at this MS KB article
Steps 7 and 8 fixed the problem for me. I didn't have "Auto-Select" checked so I checked it to see what would happen and haven't had the dreaded Red X problem since. Well, haven't had it on pages that are constructed correctly. For some reason, when the page's author links a graphic to his/her harddrive (bad html code) I just can't seem to get it to load. Go figure.