Found this on XDA. It's great. [APP] Gmail.apk 2.3.2 that Always Displays Images (Froyo) - xda-developers
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Thank you! I guess I'm not the only one who found this extremely annoying!

People installing this should just be aware that images defaulting to off is a security feature to prevent tracking/email harvesting (as well as objectionable images) in spam.
So, if you install this, be extra careful opening questionable emails. Spammers use uniquely keyed images on emails so if you reach out to their server for that image, they know they've hit a good email address and it goes into lists for other spammers.
That is a great point and one for everyone to keep in mind. The upside to this is Google has the best spam filter IMO out there. I get a lot of spam each day, but NEVER see it hit my inbox. If anything I have to check because it may have filtered too well.