YES! YES! YES!!!!!!!
I went to the link you gave me:
4. Have you tried clearing your browser cache and cookies? http://www.google.com/support/accounts/bin/answer.py?hl=en&answer=32050
and followed the instructions given for Google Chrome (= spanner on right side of screen, click on "tools" in the drop down menu and then on 'Clear browsing data")
the computer did a little bit of thinking and then closed all my open windows, went back to WP (logged in) and when to my post in progress.
I clicked on the camera/media icon and got an option to "drop in " or download, (no clue how to drop in so I tried download, I could then go to my photos on my hard drive and select a photo, ... scrolled down to add the caption and then "insert into post"...
( btw it *didn't* go through the Media Library at all this way)
Et Voila!!!! It WORKED!
You made my day, I am SUCH A HAPPY BUNNY now!!!
To anyone else struggling like I have for the last two hours, please take heart, I'm a technical dunce of profound proportions so if I can get this to work there's a very high chance you can too :)
I'm still on flippin' crutches but if I COULD dance a little happy Jig, right now I would!!!
SO many Thank-You's to everyone who's helped out in this thread, I outlined what I did that worked in the hope that it also helps someone else who's having this problem.
WP Volunteers and members are the Coolest!