Here's the loop from index.php.
<h2 class="pagetitle">Current Exhibitions</h2>
<?php query_posts('cat=1&showposts=2'); ?>
<?php if (have_posts()) : ?>
<?php while (have_posts()) : the_post(); ?>
<div class="post" id="post-<?php the_ID(); ?>">
<div class="postthumb"><a href="<?php the_permalink(); ?>"><?php post_image('', true, true); ?></a></div>
<h3><a href="<?php the_permalink() ?>" rel="bookmark" title="Permanent Link to <?php the_title(); ?>"><?php the_title(); ?></a></h3>
<?php the_excerpt(); ?>
<?php endwhile; ?>
<?php else : ?>
<h3 class="center">Not Found</h3>
<p class="center">Sorry, but you are looking for something that isn't here.</p>
<?php endif; ?>
I couldn't really explain the perameters for you without going back and reading the link again (I have a few things I have to go take care of). But with this use of the arguments I have it set to never use a default image (the posts in this category always have images). I understand your pain though, the documentation is a little confusing, but keep going through it and it will eventualy make sense. It's a great plugin, that's for sure.
As far as the image is concerned, it's from a local photographer an shows an arm with bullets tucked under a cloth wrap.
Good luck. And if you come up with a great way of using it, post back here.