Due to a limitation within Outlook, the Add Image pull-down menu can only display 999 results. If there are 1000 images loaded into the content library, the Add Image pull-down menu will appear blank. Clearing some lesser used items out of your Content Library and getting the total number count under 999 will alleviate this issue.
This limitation applies to all content in PoliteMail pull-down menus including Smart Attachments, Mailing Lists, Templates, Paragraphs, and Links.