I have a friend who is trying to send me attachments (mostly Web pages) in Outlook Express that also contain pictures. Many (but not all) of them come through with red Xs instead of pictures. I'm pretty sure the problem is not on my end. This happens to a lot of people that he is forwarding to. He is running Windows 98. I told him to check and make sure that his Tools>Options>Send is checked to send HTML, but he says that it is. I know there's a simple answer, but my backchecking has not revealed it. Can anyone help?

It is the RECEIVING PC that blocks the photos, by not letting attachments through.
Check your OE (or other emailer) settings to allow attachments. You may open a can of worms though!
In Thunderbird you will get a warning on the top-right when you open that email, to click there if you want to see any photos.

If you trust the sender, ask him/her to zip those files, zip attachments are allowed to pass.

I don't have anything blocked on my end. I am allowing attachments to be saved or opened, and I'm not blocking HTML images. (This is in OE).

Some firewalls (like my Agnitum Outpost Pro) also block pictures of a certain size, e.g. 100x100, because these are most often associated with advertisements (adblock function).
You may have something similar.