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**This issue has been resolved in ArcGIS (Desktop, Engine, Server) 9.3.1 Service Pack 2.**
ArcMap crashes when saving a .mxd file that references an inserted picture, such as JPEGs, whose folder path cannot be found. ArcMap crashes when accessing the properties of a missing inserted image.
This is a known issue. This issue has been addressed in the ArcGIS 9.3.1 Unreferenced Inserted Picture Patch. See the corresponding link in the Related Information section below.
The picture can be embedded as part of the map document, if the map needs to be sent to someone who may not have the picture file. This increases the size of the map document, but makes the document more portable. See the link to the ArcGIS Desktop help topic in the Related Information section for details.