I'll walk you through this slow. Don't be insulted. I just wanna be sure I'm thorough.
There's an option further down that says. "Show image attachments and [img] code in Posts? Selecting no will show a hyperlink instead." However you wanna work that should (hopefully) work fine after you fix (what I believe to be) your cookie problem.
There's other options there you can monkey with as well, but I don't think any of the others are related to your problem.
Le'me know how it goes.