Well I figured it out. I just needed a break from the computer to get my mind back in gear. For the benefit of anyone else reading this...it WORKS to use html and create your post in a table. You can use Notepad or a program to do this. Set the table bg as the url for your image. You may have to edit and play around with the image to get it looking nice in various screen sizes. Then, post in html view beginning with and ending with the table tags.
Now... what was preventing my photo from showing were the table parameters that I had set up for the theme. These are easily changed from your admin panel under Appearance > Atahualpa Theme Options. Click Tables. Make sure the color for the post bg is removed. I removed it from the caption as well. Then be sure that the hover effect is set to 'no.' The default is yes. Voila. Photo now appears in the posts.
Here's my blog....still got some tweaking to do, so it's not linked to any of my sites yet.
With regards to the colors of the side bars.... go to Appearance > Atahualpa Theme Options in your admin panel for wp.
Click Sidebars at the top. Under left and right side bar 'options' respectively, ( they are near the bottom of the page) change the hex number to the color that you want the sidebar to be. The default is white, or ffffff. You could make it grey by changing it to DDDDDD.
Hope it works out for you!