Hi GEBSEWS, welcome to the forum!
As you've discovered, Reader doesn't work with "doc" files; only with RTF and, as slayda says above, with RTF you can't have either a TOC or pictures.
If you look in the "Reader Content" section of the forum you'll find a number of tools for creating "lrf" books. I'm afraid I have no personal experience of using them (I stick with RTF) so I can't personally comment on their ease of use, but you'll find lots of helpful people here who will be only too happy to answer your questions and help out in any way they can.
You've certainly come to the right place to get the "inside info" on the Reader
.