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It just seems to display a very basic font justified to the left.
That's a clue that the problem is more than images -- IE is also having trouble with external files of any kind, such as css.
I wish I had an answer for this -- I'm having the same problem with Internet Explorer 6 and it makes life difficult when testing my sites. However, in my case the browser gets fixed when I reboot, although temporarily. Sooner or later the problem comes back.
I suspect a conflict with other software - perhaps something that taps IE6 or perhaps another browser, and perhaps even my Norton A-V. At any rate, I've suffered it for months and I hope this thread uncovers a new direction to try.