Image img = System.Drawing.Image.FromFile("Image1.ImageUrl");
Based on the error, it looks like the file that you want to refer here is missing at the location pointed to.
Please make sure that the file location and the file is present at the location you point to.
Based on the commented code, it looks like a relative path issue.
There is a method exposed to handle URL's. Have a read:
ResolveUrl[
^].
I would suggest you to use this Tip and resolve the path correctly before setting the control/image source:
Resolving Paths in a Multi-Folder WebSite[
^]