If you use the supporting folder option, then all the images will go to the
index_files folder. If you go to Tools > Options > Web tab and untick
"Organize supporting files...", then they are produced at the same level as
the index.htm file. Either way you do it, the images that you embed are
copied and renamed. In fact, Pub 2003 produces different formats of the
images, with the goal of providing the best image depending on which browser
is used. You might publish your HTML to a folder on your hard drive to study
the output.
The only way I can think of accomplishing your goal is to import the images
into the Publisher doc, not embed them. Then you could put the images in
what ever folder you wanted. You would use the insert html code fragment
tool to insert a code snippet such as this:
<IMG SRC="
http://www.yoursite.com/projects/projects1/images/yourimage.gif"
ALT="any text you want">
The alt tag is optional.
I am not sure how you are structuring your site, so you might want to
consider building your site with multiple Publisher files: "Building a web
site with multiple Publisher web publication files":
http://msmvps.com/blogs/dbartosik/archive/2006/01/16/81264.aspx
If I am guessing correctly then you could create project1 with a separate
Pub file, upload it to the projects1 folder, and the imported images to the
images folder.
DavidF