How to align image same as text in Word 2007?

According to this article on Vertical Alignment of an Inline Graphic:

The effect that Robert is noticing is the default behavior for inline graphics, although the cause he cites is backwards—it is actually the graphic that defaults to bottom alignment with the text, not the text with the graphic. So the solution involves adjusting the vertical positioning of the graphic.

Word treats inline graphics as a single character. You can change the vertical alignment of an inline graphic by treating it as you would any other single character whose vertical position you wanted to adjust. Follow these steps:

1. Select the inline graphic by clicking on it once.
2. Display the Font dialog box.
   • NOTE: Normally you can do this with Ctrl+D, but when an image is selected this will duplicate instead. You can open the dialog by expanding the font ribbon box.
3. Go to the Advanced Tab.
4. Using the Position drop-down list, choose Lowered.
   • 
5. Enter a value in the By box, to the right of the Position control, that represents the number of points by which you want to lower the graphic.
6. Click OK.

You may need to play with the value entered in the By box (step 5) to get just the look you want. The value you use will depend on the size of the graphic whose position you are adjusting and the characteristics of the font used in the paragraph.

But if you put an image in the correct location, set it's Text Wrapping to Square, Tight or Through and make your way to the Picture Position settings, you can configure Vertical Alignment to be Centered relative to Line.

I think this is as close as you can hope to get for "built in" features - this does, however, do some rather strange things to the layout if there are lines directly above or below - so test it does what you expect first.

Edit

Now at home, so here's the long Word 2007 version - with pictures!

As per munnaBhai's answer, you may wish to stick this in a template if you plan to use it a lot.

First, insert the image file in the location you wish to appear and then select it.

Next open the "Advanced Layout" window:

Set the text wrapping to Tight, then switch to the picture position tab:

Make the image move with your text, vertically centred to the line and horizontally linked to the character before it.

Final result (this image isn't great quality, I've taken it from a screenshot from your question). It's not perfect, but it's as close as I think you can get with the built in Word functionality:

Try changing Text alignment in Paragraph.

I have no idea why it is put under Asian Typography.