Copy and paste images appears as a small red cross
Might have to delete the contents of your secure temp folder

You can find the location of this folder by looking in the registry
HKEY_CURRENT_USER \ Software \ Microsoft \ Office \ 11.0 \ Outlook \ Security

OutlookSecureTempFolder

Something like:
C:Documents and Settings \ "username" \ Local Settings \ Temporary Internet Files \ OLK411 \

Office Online - HP001085952 - unblock image downloads in Outlook