Hi Sonia,

The field code syntax you posted is incorrect - the quote marks are in the wrong places and part of the '\* MERGEFORMAT' switch is missing. plus you don't need the '\* MERGEFORMAT' switch. Coding the field as:
{INCLUDEPICTURE "c:\\CatalogPictures2\\Rings\\{MERGEFIELD Product_Image_File1}" \d}
or:
{INCLUDEPICTURE "c:/CatalogPictures2/Rings/{MERGEFIELD Product_Image_File1}" \d}
will work.
As you found:
1. the pictures usually won't show correctly. You can refresh the fields (eg Ctrl-A, then F9) to get this to happen; and
2. even after updating the images, they remain linked to the image files, which can be an issue if you need to send the merged output to someone else.

The following field construction addresses both issues (and you only need one backslash for the path separators):
{IF {INCLUDEPICTURE {IF TRUE "c:\CatalogPictures2\Rings\«Product_Image_File 1»"} \d} {INCLUDEPICTURE {IF TRUE "c:\CatalogPictures2\Rings\«Product_Image_File 1»"} \d}}
or
{IF {INCLUDEPICTURE {IF TRUE "c:\CatalogPictures2\Rings\{MERGEFIELD Product_Image_File1}"} \d} {INCLUDEPICTURE {IF TRUE "c:\CatalogPictures2\Rings\{MERGEFIELD Product_Image_File1}"} \d}}

After running a mailmerge coded this way, you'll have the correct, unlinked image for each record.

To toggle the field code display on/off, simply press Alt-F9.

Using a {Next Record} field in a letter merge or a directory/catalog merge can also result in records being skipped. For your purposes, what you're generating is the same as a label merge - which is why the {Next Record} field is needed. For a letter merge or a label merge, you should not have a {Next Record} field after the last item on the page.

__________________
Cheers,
Paul Edstein
[Fmr MS MVP - Word]