Well I have a result.
I took the advice above and opted to use windows Live Writer instead of Word 2013.
I was still getting error messages, and couldn’t post upload/post more than one image per post. My web host couldn’t help on this issue and sort of washed their hands and attempted to opt out of the problem.
We are able to publish posts with images while Twenty Eleven theme is activated. Please refer the screen shot. You can post images from your WordPress dashboard. The issue with live writer is way out of our scope of support. You can contact the script vendor for assistance. Do let us know if you have any further questions.
Looking at their test posts, all of their successful ones only contained one image too. In fairness though they iron out a couple of other speed problems along the way.
I remembered that I also had an image upload problem with the “Postie” plugin some time ago and in the end my fix was to downgrade my WP installation in increments until I could achieve a consistent result. I had to go right back to 3.4.2!!!
Well guess what, I had to do exactly the same again, and now I’m happy. I can prepare and edit posts offline and have a choice of methods.
I’m not going to mark the tread as resolved though, because it IS still a WP issue – Word 2013 and Windows Live Writer do not work as they should with the versions above 3.4.2.