one other person mentioned how to fix the issue but didn't correctly state the solution. The reason it happens is because the file is not pointing to the image folder and to solve that you will have to do the following. I have it working just fine I just wish that that you could sort by category, popular, views and random.
1. Go to your modules folder via your favorite ftp
2. Go to mod_latestvideo
3. open mod_latestvideo.php
4.Go down to line 67 look for src="images'
5. change it to src="'
6. now go to line 71 and change src= to the same as above.
7. if you are having a problem find src= do a search for all using your fav editor.
8. Now save and upload to your ftp
9. You may also use firebug to see that the image path is incorrect.
Furthermore you can change your image size and add anything else you need here as well.