Pictures showing red cross in Outlook 2010

Check to make sure Internet Explorer isn't marked as "Work Offline".

(Because of the continual existance of this problem, I am cross-posting the solution that worked for me, 9/16/2013)

A year later and we're still dealing with embedded images in Outlook!
This problem is easily three years old!

In testing *my* problem, I was sending embedded images to myself. They were coming in with the red x and usual verbage.
After 13 1/2 hrs of constant trouble shooting, my problem centered on Outlook and sending jpg's. Other email clients worked (MS Mail Live). Other image types worked! The problem was independent of ISP.

[Here, I will spare you the details of the countless emails sent to myself and others, the clients used, the ISP's used, deleting Content.Outlook folder, deleting Content.Outlook folder, recreating Content.Outlook folder, shutting off antivirus software, uninstalling antivirus software, uninstalling Outlook, reinstalling Outlook, and lastly, THE NUMBER OF REBOOTS!]

Bottom line, I tracted my problem down to MIME type!

On my computer, WITH Outlook:
.bmp's were being sent fine. My computer showed a MIME type of: image/bmp.
.gif's were being sent fine. My computer showed a MIME type of: image/gif.
.jpg's were being stripped. My computer showed a MIME type of: <blank>

(Mind you, during all of this, all image formats worked perfectly with MS Mail Live!)

I edited the .jpg MIME type to: image/jpeg

Every email went through correctly with embedded jpg images.

I don't know if this is your "magic bullet" but it was mine, even though it cost me 13 1/2 hrs of painful research and trouble shooting!

Others, including Slipstick, focus on the Content.Outlook folder. It might be true that a full Content.Outlook folder will give you "red x's" but if it is not full, I do not believe that Content.Outlook as anything to do with embedded images. My understanding and observation is that Content.Outlook as more to do with attachments than it has do to with embedded images! If you have emptied the Content.Outlook folder and you still have "red x's", move on. The Content.Outlook folder was not your problem.

how/where did you actually make the changes?