I was starting to wonder if physicists had to jump through hoops that biologists don't! I write all my manuscripts in Word. Most of the journals I submit to have a PDF converter right on their submission website, so I just upload the Word document, and they do the conversion to PDF for review. Figures are usually done in a separate software; in my case, often PhotoShop or Excel, depending on whether it's an image or graph, and saved as a format compatible with the publisher's website again. Read the instructions to authors! A manuscript is formatted very differently from the final published version to make the review/editing process easier (such as double spacing and including line numbers).
I do know what you're talking about with trying to embed figures within a Word document though. When I prepare grant proposals, I need to do that to show the preliminary data, and Word can be really picky sometimes. I find it's easiest to just stick all the figures at the end and then move them to the right location after everything else is typed. When you insert the pictures, you have to go into the advanced options to adjust the placement, text wrapping, overlap, etc., or else it will really screw up your formatting if left to the default settings.