I have some experience (mostly unsatisfactory) with Dedicated Micros' SD model. I'm guessing its very similar to yours.
1) You HAVE to use Firefox. IE won't work, DM admits as much. They seem to be unsure whether or not Chrome can access these CGI calls, but based on my experience, the answer is no.
2) Aside from "camera=", none of those parameters really matter, at least for ad_display_pic. I'm not sure they affect the video stream. Yes, I realize they are all mentioned in the document, but based on conversations from tech support, they either will fail gracefully and not affect your videostream, or it will error and force the download dialog you're talking about. That dialog means you either screwed up your image url with bad parameters, you're using the wrong browser, or your box is set up to record in the wrong format.
3) Under your record settings in the DVR Config webpage, make sure you're recording in JPG. Not MPEG, not multimode.... JPG.
4) You can also try ad_replay_pic instead of ad_display_pic. It needs more complicated parameters: id (should be a random integer), control (PLAY for video feed, STOP for still), camera (your camera number), and local (local time of the recording, 01:12:50:18:09:2011 == "September 18 2011, 1:12:50 AM")
hope that helps.