Using: Office XP (no updates)

Operating system : Windows XP SP1

When I insert a picture into word I am unable to drop & drag it to the
place I desire. So i click on [format picture] -> [layout] then i
change the wrapping style from "In Line With Text" to any of the other
options available.

After I Do this i am able to drag & drop the picture.

Unfortunetly, when I right click on the picture i am no longer unable
to attach a caption to the picture.

I really need captions on my figure as I want to generate a list of
figures for the start of the document.

I have already tried attaching the caption before I change the
wrapping style but the problem with this is that when i drag the
picture the caption does not stay on the bottom.

Plz help!