I have created a spreadsheet of book I am wanting to purchase and I am
putting photos I get off the web of the books into the spreadsheet. Before
I put them into the cell I convert them to a .jpg file using Irfanview.

When I get done inserting the photo I right click on the photo in the cell
and go to "Size and Properties" and go to the "Properties" tab and select the
"Move and size with cell" option and make sure the "Locked" box is also
checked. I then close out the dialogue box.

I save the Excel file (I have Excel 2007 and have saved it as a .xls and
..xlsx file) and close it out. When I save the file I get a "Compatibility
Checker" dialogue box that tells me that "some cells or styles in this
workbook contain formatting that is not supported by the selected file
format. These formats will be converted to the close format available.".
I've closed out this box and let the file be saved.

Within a short when I open the Excel file in either extension (.xls or
..xlsx) the photos disappear.

How do I correct this problem?

with the above the method, you are just inserting the picture into the layout of the cell and not into cell.

try below method: Add a Picture to an Excel Comment (check whether this works for you)

Right-click the cell which contains the comment.
Choose Show/Hide Comments, and clear any text from the comment.
Click on the border of the comment, to select it.
Choose Format|Comment
On the Colors and Lines tab, click the drop-down arrow for Color.
Click Fill Effects
On the picture tab, click Select Picture
Locate and select the picture
To keep the picture in proportion, add a check mark to Lock Picture Aspect Ratio
Click Insert, click OK, click OK

for video on you tube
http://www.youtube.com/watch?v=rdBpA...layer_embedded

all the best