Here's an example of a feed where the thumbnail images appear in the lower half of the window when "Do not show images" option is set to Yes. More than half the articles in this feed include thumbnail images.
http://rss.azstarnet.com/index.php?site=dailystar
BTW, I also tried setting to No, in case I'm misinterpreting the double negative
![Confused :?](images/smilies/icon_confused.gif)