OK so i fixed this and this is how. I was putting the images in the wrong folder... i was putting them in the default images >> status icons folder.... If you are using a template remember to drop the images in the relevent status icon folder for that template in my case that was located here:
forum/images/sentosa/statusicon/xx.gif
Also i placed the code in a slightly different place than what was suggested by the OP. I have highlighted where i put it in red. Hope this helps!
<tr align="center">
<td class="alt2"><img src="$stylevar[imgdir_statusicon]/$forum[imageprefix]forum_$forum[statusicon].gif" alt="" border="0" id="forum_statusicon_$forum[forumid]" />
<div></td>
<td class="alt1Active" align="$stylevar[left]" id="f$forum[forumid]"><div style="float: left; margin: 0px; padding: 0px;">
<img src="$stylevar[imgdir_statusicon]/$forumid.gif" alt=""/></div>
<a href="forumdisplay.php?$session[sessionurl]f=$forum[forumid]"><strong>$forum[title]</strong></a>
<if condition="$show['browsers']"><span class="smallfont">(<phrase 1="$forum[browsers]">$vbphrase[x_viewing]</phrase>)</span></if>
</div>
<if condition="$show['forumdescription']"><div class="smallfont">$forum[description]</div></if>
<if condition="$show['forumsubscription']"><div class="smallfont"><strong><a href="subscription.php?$session[sessionurl]do=removesubscription&f=$forum[forumid]" rel="nofollow">$vbphrase[unsubscribe_from_this_forum]</a></strong></div></if>
<if condition="$show['subforums']"><div class="smallfont" style="margin-top:$stylevar[cellpadding]px"><strong>$vbphrase[subforums]</strong>: $forum[subforums]</div></if>
</td>
<td class="alt2">$forum[lastpostinfo]</td>
<td class="alt1">$forum[threadcount]</td>
<td class="alt2">$forum[replycount]</td>
<if condition="$vboptions['showmoderatorcolumn']">
<td class="alt1"><div class="smallfont">$forum[moderators] </div></td>
</if>
</tr>
$childforumbits
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