In order for the picture to work it needs to reside in the Pictures directory specified in SO Admin|Configuration. This setting applies to all items. You cannot store pictures anywhere else. Clicking on the lookup button in the item properties and navigating to a directory other than the one specified in the configuration will not work.
If SO Admin|Configuration|Paths|Pictures is C:\...\Store Operations\Pictures (the default) then the picture files must be in that directory. No subdirectories are allowed. The only acceptable entry in the Item Properties|Special|Picture: field is the filename.
Yes, this is stupid.
If you change your configuration in SO Admin to E:\Pictures you should be OK.
If you share the drive with others, you will have to reconfigure SO Admin to point at the appropriate network drive & directory.
Tom