Your JSP it looks fine to me... so I'm not sure why you posted it. I even made a copy of it just to be sure and it ran OK.
In the standard installation, that you download, the images are indeed in the images directory.
View the source to give yourself some clues about how things work.
Have you tried modifying the images used for categories in the Admin App? (change the filenames and put the images in the images directory).
