Daisy,
It's amazing what can be done in a word processor. (I don't happen to use Word not only because of an anti-MS bias but also because it isn't as functional as some others). But if you are doing a book, I'd really suggest you get In-Design and Photoshop. If you don't know these programs, spend $25 for a month of Lynda's training videos. You'll probably not spend more time than you do poking around with Word trying to make it work.

I've used a word processor to make output adequate for some "instant print" publications. I even did my Dad's account of his and my uncle's 11,000 mile tandem bike trip around the US back in the '30s. But really, if in-text photos are part of what you are doing, consider using a real layout program. I'm going to be doing a technical manual soon and I'll be using InDesign for that.

I do have experience in commercial publishing so am also giving you a "voice of experience" from that standpoint, as well.

Also there are people who do layout for reasonable amounts -- especially if you have a really good model already done. That might be cheaper than the software.

I can give you a couple names if you want.