The 1kb isn't a cache size. It is the maximum image size to cache. So by setting it so low, you are telling it only to cache very tiny images. As noted above, it isn't doing anything with images above the threshold at the moment.
Were you trying to disable it by setting it to 1kb? If so, deselect the "Enable Image Cache" setting instead.
If you want to really use the feature, you need to set that value sufficiently high. Given the bug noted above, where http images above the max file size aren't displayed at all, I would start with a very high value, like 10000k.