Margaret Woda's comment here got me wondering ... "I am missing something in this WordPress/Image/Internet Explorer/Two-Dot/Headache business.... what am I missing?"
Aww, man. This might be the answer. Here are the basic steps to adding an image with the WP Visual Editior in either WordPress.org or WordPress.com.
In the lower panel Upload, you click browse, and choose an image from your computer. You click "open" to select, and then "Upload"
Then you select either "Thumbnail" or "Full size" and "Send to editor".
Then you click on the the image to select it, and click on the little tree icon to set alignment and spacing.
But wait, hold everything. You need to also fill in the image dimensions. It seems WordPress (for me at any rate) doesn't automatically sense the image dimensions when uploaded with Internet Explorer. Fill the the dimensions, and then click "Update".
Remembering to manually fill in the image dimensions has solved the WordPress/Interent Explorer/Two Dot Image Headache for me.
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