I had exactly the same problem – WP v2.8.5, Really Simple Captcha v1.0, used with Contact Form 8. In FF the image box was a blank white rectangle. In IE the box had the word “captcha” in it.
Thanks to MagicG, I traced my problem to the Upload Path – which in WP v2.8.4 was correct (and thus Captcha worked on that version) but when I migrated my app to a new directory for v2.8.5, the Upload Path still pointed at the old 2.8.4 upload location. Correcting Upload Path cured the problem.
I have also updated to Captcha v1.1 and it’s working fine.