Are you running FMPro 5 on Mac OS X or an earlier version of the Mac OS? FMPro 5 was released in 1999, before Mac OS X was released.
FMPro 5 is old enough that it may not consider the '.jpg' file extension when identifying insertable JPEG files in the file dialog. Under the classic Mac OS (before Mac OS X), the file type is/was set independently of the filename. You can try using some sort of file utility to change the file type of the files to 'JPEG' instead of '????' (which is what they probably are right now).
That was the issue! We actually just upgraded to FMPro 10 and that solved everything. Obviously, a much nicer edition of the software as well. Thanks!