Actually -- try the "runat=server" on the body tag in combination with an onload="..." command.  I submitted a bug report about this -- http://lab.msdn.microsoft.com/productfeedback/viewfeedback.aspx?feedbackid=ca70bfbc-d242-48d2-b8d4-f220c28bc9e7.  It's the "onload" that seems to make it go weird.

I also was able to get the "~" thing to work with "runat=server" on img tags and anchor tags.  I also tried your scheme for putting the background images in the style sheet and that does work ... I thought it would not work in subdirectories but it did.

The only place I could not use "runat=server" was on anchor tags that had "onmouseover" and "onmouseout" using the Dreamweaver image rollover scheme, which involves naming the rollover image in the "onmouseover".  Of course, then, this is another image that needs to be made "non-relative" somehow.  I tried making the "a" tag "runat=server" and using the tilde format, but (as I expected) that did not work.   So in that one case I had to use my <%=imageFolder%> scheme. 

Thanks for all the information about the tilde thing .. I know a lot more about that now. :)