... it says it can't connect to proxy server.

Then check your network settings and correct the one for the proxy. If you don't use a proxy, adjust the setting accordingly.

I have selected no proxy server. Thunderbird still tries to connect to a proxy server.

Have you checked the network proxy settings? If you have no proxy set up, you should be using "No proxy". The setup is in Options > Advanced > Network & Disc Space > Settings.

I have gotten rid of the proxy problem finally, but still could not see images. Apparently Thunderbird blocks all images by default. After some reading, I think I have it solved. The e-mails with blocked images have a link in the message header block to always show content from this sender, "or something similar". Clicking this for problem sender seems to cure this problem. I hope this is of value to others.

Thank you. So simple - once you wade through all the other suggestions.