I'm still finding problems with having hotpotatoes show images that have been added through a local file rather than by a URL. I'm using Moddle 2.0
I created a folder and placed the hotpotatoe files and their associated images in it (and with no spaces in file names). See image in attached document.
I created a folder in legagcy course files (repository option is not yet open and syill ahve to negotiate that) in their own folder. See image in attached document.
When I uploaded the .htm file to the course page - all image files that had been uploaded to it from my computer were NOT visible.