Here's what I did to get it to work. You can take a look at my counter at http://silverlynx.wordpress.com/.
Click on dashboard. Then naviagte to 'Links' and then to 'Add Link'.
There are three areas to add information. Basic, Link Relationship (XFN), and Advanced
In the 'Basic Area' add
To the 'URL' section.
You can also add a Link name and a short description if you want. Make sure you choose a category that allows the display of images.
Now scroll down to thr 'Advanced' section and add
To the 'Image URL' section. Leave everything else alone. Click 'Add link'.
Now go to your main page, and click refresh. If it still doesn't show up, clean out your browser's cache, and then reload the page (I had to do this before Mine would show up). If it still doesn't show up, I don't know what to tell you.