Found this article at Cocomore.Com which claims to solve the problem so try that.
After reading this through the article is very useful using IMCE and Lightbox2 as the examples. But in a reply to a comment the author also says that Colorbox is an alternative and that he may well end up preferring Insert. But perhaps more importantly I find in the Wysiwyg configuration page this warning.
CKEditor (Download) Not installed.
Extract the archive and copy its contents into a new folder in the following location:
So the actual library can be found at:
Do NOT download the “CKEditor for Drupal” edition.
So now I’m thinking I can uninstall IMCE and CKEditor modules and install the CKEditor library? Need to test tomorrow.