Steve,
Your symptoms (images fail to load, stops IE from correctly loading other images from then on) sound like a match for http://support.microsoft.com/?kbid=817177
Basically, there are some images that make IE crap itself - we first noticed it with some client-provided files that had been saved with photoshop metadata embedded as XML (iirc)... the only practical solution is to make sure none of the images on your sites trigger this lossage in IE...
(insert standard "IE blows goats" comment here)
