jason,
Strange. It works just fine here.
Can you try the following configuration?
<?xml version="1.0" encoding="utf-8" ?>
<configuration>
<contextmenu>
<item name="Editing" value="False" />
<item name="Format" value="False" />
<item name="Insert" value="False" />
<item name="InsertAdvanced" value="False" />
<item name="InsertFiles" value="False" />
<item name="InsertForms" value="False" />
<item name="Relative" value="False" />
<item name="Tags" value="False" />
<item name="Verbs" value="False" />
</contextmenu>
<toolbars>
<item type="g_start" />
<item type="table" />
<item type="image" name="Save" postback="True" />
<item type="image" name="Bold" />
<item type="image" name="Italic" />
<item type="image" name="Underline" imagename="under" />
<item type="separator" />
<item type="image" name="JustifyLeft" imagename="left" />
<item type="image" name="JustifyCenter" imagename="center" />
<item type="image" name="JustifyRight" imagename="right" />
<item type="g_end" />
<item type="holder" name="insertcustombutonhere" />
</toolbars>
</configuration>
BTW, which version of Cute Editor are you using?
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