[SOLVED] Default Logo shows as Link, not Image

I have just installed Atahualpa 3.7.12 for use at http://mokshawellnesscenter.com/.

I am trying to insert a small photo to the left of the site's title. I think in this theme that is the Logo. It continuously shows a link, not image, even if I try the default image (logo.png). How can I get my image to display?

Settings:
Configure Header area: %logo %bar1 %image %bar2 %pages
Show logo image?: logo.png

Image:
I have not moved the location of the logo.png since I installed. I have not changed permissions at all. If I open that file with another application, I see the green flower.

I have spent time on-line and experimenting, trying to find the cause - but still coming up short.

I am not a techie so would appreciate any help I can get.

Thanks much for your time and help.