While you could try putting it inside a text box. http://callcentre.education.ed.ac.uk/downloads/quickguides/word/photoword.pdf calls moving the picture "clumsy" which I agree with. If you need typesetting, consider a typesetting program or use Word's other features to see if you can gain enough control.
Notice that Wraparound dialog box? You can get some control there as well.
I insert a picture from a .jpg file into my Word document. The picture is placed to the side of the 'body text' which flows past the picture. The problem is that the inserted picture causes the line spacing between two lines of body text to appear increased (the line spacing settings of the paragraph is not changed, it only LOOKS and PRINTS as if line spacing has increased for this particular line). If I move the picture up or down the extra line spacing also moves up or down in the body text, causing the body text to appear as two different paragraphs. I have experiemented with all formatting options - such as positions relative to page, paragraph, in line, text wrap ect, but with no luck. I can send the one-page word document, should anybody wish to see for themselves.
I have Word 2003 SP3, Win XP SP2, image type .jpg, no special macros or anything else fancy running.