Unable to place images in Illustrator

(Illustrator CS2)
Hi, Im still learning the program but this is an error that hasn't occurred before under the same circumstances. I am working on Macs at uni (as I dont have Illustrator at home) and with images from my USB drive. I want to get the images into my ai document and trace them to make a logo, but Illustrator is preventing me from doing this in any way I try.
* I try to 'place' (file>place...) a jpg from the USB into the ai document and one of three things happens:
1. It appears as though nothing has happened so I 'select all' and this highlights an empty box where my image should be. This always happens on the first try after I open the document.
2. I delete the box and try again. This time not even the invisible box is placed. The computer processes and then acts as if I commanded it to do nothing.
3. Irregularly, if I try again it seems like it's about to happen (with a preview showing and asking me to approve) and then I get the message "the operation cannot complete because of an unknown error".
* I tried opening the jpg in Photoshop and copying and pasting from there and got the same "unknown error" message, followed by the empty invisible box.
* The images place in photoshop with no problem.
* The images cant be dragged and dropped into Illustrator.
* I tried opening the image with Illustrator and get the message "insufficient memory was available to complete the operation". The image is only small - less than 1MB.
* I tried changing the file to a tiff and a pdf. I tried uploading the jpg to internet and saving and placing from there but this is unsuccessful. I tried other images saved both from my computer and the uni computer and they dont work.
* SOMETHING WORKS: I tried with random images from the internet and some (usually around 4kb) saved to Documents and placed are done so successfully. But this is no use to me.
I have done this in the past and there have been no problems placing or pasting images whatsoever. I dont think uninstalling is really an option as they are the uni's computers and that would probably be an ordeal.. I really need this to be fixed quickly as I have no other access to Illustrator and it's part of a job. It happens with all the computers in the lab. I cant even start making the logo until this is overcome. I would really appreciate some help! your ideas on what the problem could be and what needs to be done to fix it.
Thanks for your time,
Simon.

One causes of this error I've encountered has to do with the volume size of the disk the user's home folder is stored on.
I'm guessing that Simon Manion is logged onto the Mac at his university using a networked home folder that is stored on a volume larger than Illustrator scratch disk management routines can handle. (2TB is the limit I think.)
The workaround that I've been using is to create a 500MB disk image with Disk Utility, mounting the image, and using it as the only scratch disk. You may need to make your disk image larger. (Remember to restart Illustrator for the new scratch settings to take effect.)
Even though the actual local volumes are under 2TB, they don't seem to work as scratch disks if the user's home folder lives on a large server. For some reason, setting the scratch disk to a virtual volume gets thing working correctly.
This has solved the place image problem for me in Illustrator CS, CS2, and CS3.

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Choose File > Place and select an image to place into Illustrator document.
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Add Strokes to Placed Images in Illustrator | CreativePro.com

Unable to place images in Illustrator

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