Most likely you do not have File I/O permissions enabled for the current security zone.
To see which zone you're in, look at the bottom right of your browser window. You should see either "My Computer" or "Local intranet".
By default, you cannot edit these security settings in Internet Explorer. To allow editing of this zone, you must use the registry editor. For more information see Q182569 in the Microsoft knowledge base but, in brief, edit HKEY_CURRENT_USER\Software\Microsoft\Windows\CurrentVersion\Internet Settings\Zones\0 and set the "Flags" key to 1. "My Computer" will now appear in the "Security" page of the "Internet Options" dialog box.
Select "Internet Options" from the "Tools" menu, select the "Security" tab, then select the zone as indicated in the bottom right of your browser window. It should be either "My Computer" or "Local intranet". Press the "Custom Level" button then scroll down to the "Java permissions" settings. Select the "Custom" radio button, then press the "Java Custom Settings" button. Select the "Edit Permissions" tab. Make sure that the "Unsigned Content, Run Unsigned Content, Additional Unsigned Permissions, Access to all Files" is "Enabled".
You may need to exit and restart Internet Explorer for the changes to take effect.
Netscape Navigator allows applets to access files stored in the directory tree below the applet. For example, if all your image library folders (the ones with names like "001231") are in a folder called "ImageLib", then make sure this applet and its related files are in the "ImageLib" folder.