No, I have not removed the image. Here's what is strange: the image is listed in the index page (wp-content/themes/atahualpa/images/header/), and the image size displayed is correct, but it appears blank! When I download this image from the server back to my desktop it also appears blank.
The original image which I uploaded is just fine. I tried repeatedly uploading it, but no go.
I tried it with another image, and that too just appears blank when I upload using FTP.
This is weird.
EDIT: I have successfully been able to upload the image which creates the drop shadow borders for my blog.