I just see you use a .png file as image, I would try with .jpg.
-and the file ...wp-content/uploads/2010/09/Ozgeneral.png is even not there anymore (It was there before..)
as the timthumb script is still developed you could try the latest version you get here:
http://code.google.com/p/timthumb/
use right mouse and save target as for this link
http://timthumb.googlecode.com/svn/trunk/timthumb.php
replace that file with the one on your server after making a backup of the one you use.
This version of timthumb can even cache external images from flickr and others, but you need one more folder called temp beside the cache folder
...\themes\arthemia\scripts\temp
this folder has to be writetable too (777 or 755)!
setting folder permissions I would use a ftp program like filezilla, do not modify script files!
to show one pages in headline replace the query:
<?php query_posts("showposts=1&category_name=Headline"); ?>
with a query for just one page, if you know the ID (here ID is 5) use
<?php query_posts('p=5'); ?>
to show four pages in featured section you have to replace the query for featured, again in index.php. Replace this single line:
<?php query_posts("showposts=4&category_name=Featured"); $i = 1; ?>
with these some lines for pages with IDs 3 and 5 and 7 and 15:
<?php
$args = array(
'post_type' => 'page',
'post__in' => array(3,5,7,15)
);
query_posts($args);
?>
ANY ID YOU HAVE TO SET TO THE PAGE YOU WANT TO SHOW
PLEASE BACKUP ANY FILES YOU WANT TO EDIT BEFORE DOING ANYTHING
more inf here:
http://codex.wordpress.org/Function_Reference/query_posts
and here:
http://wordpress.org/support/topic/how-to-retrieve-multiple-pages-using-query_posts
talking about SEO it's of course better to update a site. With WordPress using posts this changes your frontpage without editing any .php files, older posts move down, the latest ones appear. Pages are really static, even by updating the content they will not change much.
There might be no WP-theme showing static pages in front and the posts somewhere else, I guess they know why.
Putting pages in the category bar was explained here a while ago:
http://webdesign.go41.de/wordpress-tips/list-pages-custom-styling-in-arthemia-category-bar/