Well, the HTML uploads, right? Then you could try the following: open the HTML in a text editor, search for "<img" and replace the part
Code:
"TheRiseandFallofFreedomInAmericaRayHall.docx_files/image004.jpg"
with
Code:
"http://c2xcomputing.com/wp-content/uploads/2014/06/image001.jpg"
If this doesn't work with the Lulu uploader, I might add the image to the EPUB by hand for you (or you could do yourself, if you have a decent Zip program or EPUB packer), if you get an EPUB from Lulu back. The EPUB from Lulu should be re-uploadable to Lulu, right? The other thing is that you might want to test your EPUB first on an e-reading device, because since the HTML is a little larger one, there could also be performance/memory issues, so splitting would be required, and that would be another problem caused by the bad DOCX source.