Hmm... I went through those settings and then it occurred to me (and I think this is a desing flaw if this is the case - please correct me if I'm wrong).
It displays a blank if that image is from a protected album? So let's say that some user uploads 10 or more images and puts them all in his/hers protected album - in that case the latest block will be completely empty to everybody else?
I think that "latest" should display all the latest images that the visitor has permissions to see. For example unregistered users should see nine (in my case) latest "public" images, user that has uploaded pictures should see nime public images and his/hers latest (if they are among the nine latest images) and admin should see all the latest images.