Just to chip in with this, but I recently experienced an issue where I would
go to create a photo e-mail and after adding the image, the e-mail would
format itself like a photo was there, but no e-mails would actually show. I
also had issues with uploading images to my Live Spaces page. Reverting from
IE8 Beta 2 to IE7 fixed the issue. So, it seems that there may be a potential
conflict between the two. Just wanted to put this out here for anyone else
that might have this, and for MS to see if they don't know about it already.