Just to let you know what happened...
The HTML email problems were caused by Norton Firewall misbehaving. I eventually ditched it in favour of Sygate Firewall and have not had any problems since with images not displaying properly in HTML email.
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As for allowing what attachments can be seen, I found some plugin for Outlook 2003 that allows you to move extension between type 1 (no access at all) and type 2 - you can get to it if you want. It's called "Attachment options" and I got it from http://www.slovaktech.com/attachmentoptions.htm
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Thanks for the link

I downloaded it ages ago and didn't realise they had put up a new version especially for Outlook 2002 SP3 and was having a

when Outlook blocked access to a file that I wanted to access and could not set it.