Thanks for the responses guys. The google tech support tried another setting for the proxy and port and nothing worked. Very frustrating. I did have a bunch of people text me pictures and the results were a bit confusing:
1. Nothing from At&t came through (this was coming from an iphone 4)
2. If a picture was sent alone on a verizon phone (BB Tour) it wouldn't come through, it did come through a few times if text was also with the picture message.
3. Pictures from t-mobile (BB curve, old one) came through.
4. At&t tech sent a picture which came through 10 minutes later, another At&t tech sent a picture and it came through as a "play" around which when pressed would play a black screen for a few seconds.
Also, Roze, the tech had me clear out some caches from messaging app, he even had me uninstall Handcent and then told me to install it to try it, nothing worked.