Uploaded file links breaking in editor

I’m running WP 2.0.2 on Linux. My blog address is:
https://community.uaf.edu/~kuc/blog/

When I upload an image using the upload facility in post.php it uploads fine and I can see the preview.

when I drag the image to the editor it looks fine and I see it in the editor

When I publish the post with the image, the image link gets mangled. See example at:
https://community.uaf.edu/~kuc/blog/2006/04/18/test-image/

The image link should be:
https://community.uaf.edu/%7Ekuc/blog/content/Folder.jpg

But the editor is breaking it upon publication, making the link:
https://community.uaf.edu~kuc/%7Ekuc/blog/content/Folder.jpg

??