I have the problem receiving embedded pictures (JPG) with my (FIOS) email account. This problem exist when I check my Verizon Email using Verizon webmail and/or Outlook. Instead of seeing the picture, I get a box with the red X, where the embedde picture should be. As a test, I had my friend send me an Email with embedded pictures to my Verizon Email account and on the same Email he copied my Yahoo Email account (Yahoo email is not linked to Verizon). I see the embedded pictures in my Yahoo Email, but got the red X on my Verizon Email (Webmail and Outlook). My Verizon Email setting is "Images in HTML Email = Show all images".
This issues looks like it is definitely a Verizon problem.