I first tried to upload JPEG but that gave an error, so I tried PNG which also gave an error.
Also, for some reason, I can't enter a carriage return without doing it manually using the HTML editor. The version of Captivate I'm running is: 6.0.1.240. I've checked by both publishing to SWF and previewing using F4 and F12. Doesn't seem to matter, I still get the same results.