wannareef,
there is a file called, thumbs.db, that controls images when using thumbnail view..if this is corrupted it can prevent images from being displayed..I would try steps in the following KB article to delete the Thumbs.db file. Don't worry about the title, I know it does not pertain to your issue, but it was the only article I could find that has simple steps on how to delete a thumbs.db file. This file is automatically created as noted in step 2 of the KB article.
DISCLAIMER: Before you delete ANY file, make a backup copy of the current Thumbs.db file.
If deleting and re-creating a new Thumbs.db file does NOT resolve your issue, let me know. There are some other IE security settings that we can try.
Kirk