I use microsoft word. My already-published book and the one I'm writing now have hundreds of images in them. Unless you are self-publishing, only the text and notations of where the illustrations will go belongs in the MS. All the images should be in separate files. The publisher/typesetter will assemble the whole thing into its final form.
If you are planning to self-publish and have it printed by a commercial printer, then your best bet is probably Adobe Pagemaker. Commercial printers seem to be able to use it with no problem, although the industry standard for "real" publishing is Quark. Avoid MS Publisher. Printers tell me it's a real pain to work with, although it was an older version that they told me about.
Even so, you don't want to write the text in Pagemaker. You'll want to do it in a text file or in word processing software like Word or WordPerfect. Only when all the editing is done will you want to transport it into typesetting software, and you may want to pay someone experienced to do this for you. then you don't have to purchase or learn the software.
For simply entering text, you could use MS Notepad or Wordpad if you find MS Word complicated. Of course, if all you are doing is typing without formatting anything, Word is easy to use.
