Hi Jeff,
I finally got it. Attached is my latest BCF file. Here's what I found:
The last locnrule element (for the image element) is written like your suggestion. It does put this element object in the document folder. However it does not do anything with the graphic file that the image element points to. The graphic file object would continue to pe put at it's default location at the root of the folder structure. The locnhook element is needed to handle the graphic file. It does put the graphic file object in the document folder. Both the image element object and the graphic file object are initially only in the active workspace. They don't move to the document folder until these objects are checked in.
Thanks for the ideas and the help.
Mike