Running WLM 2011 on Win7 32-bit (fully patched).
I have determined that WLM uses the following folder:
C:\Users\<username>\AppData\Local\Microsoft\WIndow s Live Mail\WLMDSS.tmp
as a temporary location for files that are attachments to email messages.
If there are no open emails with attachments, WLMDSS.tmp has no contents.
If you open an email message with attachments, a new temporary folder is created in WLMDSS.tmp with the contents being the attached file(s).
When the email is closed, the recently created temporary folder is deleted. It shows up in the Recycle Bin but can't be opened there, though it can be restored. They stay in the Recycle Bin even after WLM is closed.
But the question remains: where is the picture/file contents kept until the email is opened? Part of the message?
The issue here is that if you want to save these attachments, you must do so while the email is open (Save All under right click of an attachment), or claim them from the Recycle Bin.
I haven't chased down inserted (in the body of the email) pictures/files yet.