When the image can't be displayed (for whatever reason), Firefox shows you the alt text, formatted similarly to other text surrounding it, when applicable. IE shows you a "broken image" with the ALT text inside. If the image hasn't been given an explicitly defined height & width, IE expands its broken image until the entire ALT text is shown (on one line), disregarding any other formatting, such as table cells, which would cause normal text to wrap.
"Why is this a problem?" you may be asking. Well, if a developer uses some images of text (for example, because a font is not available), and uses ALT text in an appropriate fashion, it can become a problem when the image is not available. A great example is the JPMorgan Chase corporate homepage and the front page of their investor section. They use little images to highlight links of interest, whether they be upcoming webcasts, new documents available, or their latest sponsored community activity. The text is usually 2-3 lines within the image, like this:
If the image breaks, this is what you get in IE:
and this is what you get in Firefox:
March 30, 2005 - The 2004 Annual Report is now available.
(This text would wrap as appropriate to the container.)
See why I like Firefox? Even when things "break" (accidentally or on purpose), they still look good.