Squirrelmail doesn’t support sending HTML mail (/me tries to avoid long diatribe on why HTML mail is evil). It should be able to view HTML mail, and images will show up unless they aren’t actually included as attachments with the message. In other words, if the message links to outside images, Squirrelmail won’t display them. This is primarily for security / privacy issues.
If you use a mail client like Mozilla mail or Netscape mail, you will be able to do both of these things (although again, it isn’t necessarily a good idea to do them).
I’m not sure what you mean “how can i send all mail” to this account. You can’t, for instance, forward your hotmail mail to this account, if that’s what you’re asking.