Hmm.. That purple box is probably a border. Make sure you have border="0" in all your <embed> and <object> tags. That should take care of it.
As for positioning, since we're using the innerHTML function it doesn't matter at all where your JavaScript is, it won't change where the viewer appears. Instead, move the <div> tag that's holding the viewer around. If you remember, the change() function is replacing everything in <div id="iPIX"></div>. This tag isn't actually part of the iPIX, it's just holding it. When change() is called, it replaces all the code inside that <div> tag to the code needed for the new viewer. So, moving the container that's holding the viewer will move the viewer, even if change() is called and the viewer is swapped.
EDIT: Ah, looking back I see the part about how you want a graphic there first. I assume you mean you've got an <img> in there that you latter have swapped out. If that image is also a link, then you'll definitely see a purple border around it unless you set it's border property to zero. <img src="mypic.gif"
border="0" etc...>