I’m putting this out there to help anyone who may be banging their head against their monitor. I hope this helps!

If a user cannot see images that are embedded in an e-mail message in Outlook 2007 by either viewing the message in the Preview Pane or by opening the message, do the following:

1. Create a New e-mail message
2. Click the Office Button in the top left corner (the Orb as we like to call it)
3. Choose the "Editor Options" button at the bottom right of the window
4. Select Advanced
5. Scroll down to the "Display E-Mail Content" section and make sure the "Show Picture Placeholders" option is not checked.

Finish creating your e-mail message and then send it. The settings will be saved permanently.

If the "Display E-Mail Content" was unchecked, check it, save the settings, and then reopen the settings and uncheck it again.