Sorry, it took so long to answer this.
We have now upgraded from v1.9 to v2.2.x and I am still having issues with pictures. Actually, students are.
I have recommended to them to use the URL address of a picture they find instead of the Download-Upload method.
I am not sure why but some projects (Separate groups) are successfully displaying pictures, some projects not at all, and curiously some are sometimes showing a picture in one page but not on another.
I will still insist that they use the URL instead of dowloading the picture, and then uploading it to the server. I have a feeling the wiki is not displaying it for me, when each student can see theirs. I suspect the path to the file is not referenced correctly if one is not the owner of the project they are reading.