I just spent 2+ hours trying to find an answer on the internet to this issue and the only reason I got it fixed was by implementing a fix designed for a different scenario. I'm hpoing that adding this post will prevent others from scouring the net for hours to try and fix this same issue.
Problem: When trying to view jpg, bmp or image files in general using Micorosft Photo Editor I get the error "Error Reading File". Photo Editor can view some image fiels but for some reason can't view the bulk of mine and it may have something to do with those image files being more recently created and therefore being created by newer software.
Solution: To rid this error I ended up replacing the file 'JPEGIM32.FLT' with a new one from my Office 2000 install disc.
What Happened: The only thing in common betwen my desktop & laptop computer since Microsoft Photo Editor last worked on each was the installation of Office 2007. I'm convinced that Office 2007 some how broke Microsoft Photo Editor.
If anyone knows anything about this or has additional input please add your comments to this posting.