img_assist - thyt is the problem?

Environment - Win2003 II6 server, WinXP2SP2 clients IE6; everything fully patched
Other modules of note - organic_groups, webserver_auth, tinymce, image, img_assist, search. I
have isapirewrite installed and working for clean_urls.
php 5.1.2
mysql 5.0.19

// $Id: image.module,v 1.197 2006/05/02 06:54:35 walkah Exp $
// $Id: img_assist.module,v 1.62 2006/05/12 09:56:38 pangloss Exp $

All users are authenticated with webserver_auth - no users are anonymous, so the cache should never be used.

I created pages with tinymce and inserted images with img_assist - so far so good.

Problem - images stop displaying after a few days - text appears in the same place as before on the page, leaving whitespace where the image should be. Happens with IE or firefox - display is the same.

This first happened 2 weeks ago. I only have 2 pages with pictures, and it seemed to happen to both at the same time after I spent lots of time editting OTHER web pages with tinymce. It went away after I re-editted the broken web pages with tinymce. That was the first thing I had tried, and it didn't work immediately, but it did work eventually.

It happened again yesterday, only this time I have an error in the admin log that appears to be related:

details
Type php
Date Monday, June 12, 2006 - 2:01pm
User username
Location http://snoopy/index.php?q=IT
Referrer http://snoopy/Reports
Message imagejpeg() [function.imagejpeg]: Unable to open 'files/images/computertap.img_assist_custom.jpg' for writing in D:\drupalprod\includes\image.inc on line 300.
Severity error
Hostname 10.0.0.196

From the error it appears drupal is mad that this user didn't have write access to the file directory structure. Sure enough, they don't - users only have read access, administrators (me) have write access.

Solution 1 - give users full write access to files directory to prevent this from occuring in the first place. Will try that to see if it helps.
Solution 2 - delete the contents of cache - this immediately fixes the problem after it occurs.

Questions
1) why is drupal trying to re-write the contents of an already uploaded and working image in the first place??
2) why is a bad cache entry being shown to my authenticated users? I thought cache was only for anonymous users...