Right. It's not correct that people will blithely accept an error like "Error: this image failed to load." These people don't think about errors the same way we do. To them all errors are the same and mean there's a catastrophic failure. Developers understand that some errors are minor, but a user faced with an error, where he expects a reassuring "security image," will probably become fearful and bail from that page.

Of course, he might still type in his password even if he decides not to go through and submit the form, in which case his data is still compromised.