This is the way I do it in MS Word 2000.
Open a blank word document. Click on "insert", choose picture, then select "from file". It will default to "my pictures", but you can change this to wherever you have saved your picture. When you have chosen the picture, click on insert. The picture will be placed into the document, and then you can save it in the usual way.
Probably it might be easier to save your digital picture to the hard drive first, before doing the insert.