A lot of people have had this problem - there is a quick and simple solution.
You need a single file from the Installation CD's for PhotoDraw. The file is JPEGIM32.FLT. You will have select the disc via "My Computer" and run a search with the file name above. Copy it manually into your PD installation where it will have been replaced, annoyingly, by an earlier MS auto update (some years back in my case). To find the replacing offender, you need to run a search on your PD installation you,ll find the offending file (mine was in C > Program Files > Common Files > Microsoft Shared > GRPHFLT ) which you need to delete and replace it with the one from the install CD (simply re-installing Photodraw will not replace it). That will do the trick (I have fixed 4 PCs using the method).
I could post the file here, if it is possible?
By the way I whole heartedly agree with other posts here. Photodraw was an inspired and indispensible piece of software without peer at present. The replacement programs (eg Picture-It also from MS) were rubbish and were quickly abandoned by users, rather than was the case with PhotoDraw where MS pulled the rug on the program and left loyal customers high and dry.