All images Disappeared in Magicblue 1.2 Theme

So here is my website:
MA Champion.com

Here is my other website:
CMA Reno.com

These both are using the same theme Magic Blue 1.2. As you can see on MA Champion, all of the images are gone. I am a newbie to wordpress, but not a newbie to html. I know very little php and css. Here is what I did:

I wanted to change the header image because it doesn’t exactly look like a Martial Arts website as it is. I copied the image and put my logo in it, saved the new image as the exact same name (headerbg.jpg) and then copied over the original. The header image disappeared. I then copied the old file back over, and the image was still gone.

I spent a lot of time trying to figure out what went wrong, and finally deleted the entire images folder and recopied the folder with all original files in it.

Now all images are gone.

How do I fix this? Is it a problem with the template? Do i just need to find a new template to use and say forget it?

Question #2: How do I make the theme wider? It is 770 pixels wide and I would like to extend it to about 900 Pixels wide. Thanx.