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When you insert a picture on a slide, the slide layout does not automatically change to a layout that includes a content placeholder. Additionally, the Automatic Layout Options smart tag does not appear. This behavior occurs even though you have selected the Automatic layout for inserted objects check box.
The Automatic layout for inserted objects check box does not apply to inserted pictures or clip art images in Microsoft Office PowerPoint 2003. This is a change from Microsoft PowerPoint 2002. (The Automatic layout for inserted objects check box is under Apply as you work on the AutoFormat As You Type tab.)
To work around this issue, you must select a slide layout that uses a content placeholder as part of the layout before you insert a picture or a clip art image.