greenfrog, didn't mean to hijack your topic! ;)
You'll find that a good portion of those errors are cascading downwards from the initial error. When working through the errors, begin at the top of the Verbose Report from the W3C and correct each one in sequence. As you do this, the list of errors will diminish quite rapidly and you'll find that it was not as bad as you think it is.
And yes, do assign alt text where applicable. If the image is non-essential (spacer.gif) then assign empty alt text. You'll have to if you wish to pass validation.
<added>I should also bring to your attention that the validator will only you show you the first instance of an error. If it is repeated elsewhere on the page, it won't appear until after you correct the first occurrence. This drove me absolutely nuts back in the beginning but then I caught on. You eliminate one group of errors and wham, a new set appear that are the same as the one you just fixed.
It's a tedious process but as you learn, it becomes second nature. You'll soon get to the point that when you finish a page and hit that validation button, there are no errors. These days I sometimes forget to validate and come back only to find that all was just fine. If you are working from a group of templates that are all valid, you are one step ahead of the process.