Image Issue – Failed WP install

hi,
have had a problem getting images to show on pages, including featured images in a slider. This problem started back in v3.2 (I think). it did work before someone cross hacked the site on shared hosting server.

Steps performed in troubleshooting the problem.

Upgrading the wp version of course changed nothing. Disabling plugins changed nothing.

theme was on v2.1 and developer refused support without purchasing latest theme version. Purchased & installed, now v2.6 – reset everything, because their update removes all custom. Tried all their suggestions (eg: read the manual) – no resolution

have noticed that the image ALT tags display, but no images. images do display with a default 2012 wp theme. the images are retrieved from SE rss feeds and other site rss feeds.

last nite was installing another site wp setup and noticed that the images did not display – different host – so I removed everything and reinstalled this new site – everything works.

here is my question:

a failed wp install it seems can cause image problems. when wp installs and upgrades, Does it delete replace ALL the files in the public html folder, or does it replace only certain changed files?

Also does it change anything in the DB?

How does the WP install in public html retrieve the images for display? please step to step eg: file1—> file2 —> file3

Thank everyone for any and all assistance