Huh, is there a error box that pops up or something?
On a whim I'm guessing it's that the images were converted from .pbm to the more useful .bmp , but you need to save your .exe to use these. Try opening up the mod in BL again and clicking "File>Save All". This basically does the graphic setup for you rather than having to manually set it with CE.
There was no error box, but in the mod folder there was a .txt file called error that had this in it:
C:\Users\username\Downloads\Games\CaveStorytest\data\stage\Prt.bmp,0
C:\Users\username\Downloads\Games\CaveStorytest\data\Npc\Npc.bmp,0
C:\Users\username\Downloads\Games\CaveStorytest\data\Npc\Npc.bmp,0
C:\Users\username\Downloads\Games\CaveStorytest\data\stage\Prt.bmp,0
C:\Users\username\Downloads\Games\CaveStorytest\data\Npc\Npc.bmp,0
C:\Users\username\Downloads\Games\CaveStorytest\data\Npc\Npc.bmp,0
Thank you for your help!