I found this solution in this forum. Could you explain step by step process to achieve this ?

"....This is a known issue where IE would not cache the image. We renders the image with caching headers properly set and for some reason IE just refuse to cache them and it occurs particular when the image is a background image, which is your case. We have experimented and noticed that IE often started to cache them if you clear out your temp file cache, but it will soon stop caching them as if it has never seen these images.

One thing you can try is to use real image files instead of the built-in "virtual images". You can find all the image files we use in a zip file Images.zip in your installation folder. You can unzip that file to get the real images, put it on your server, then set appropriate menu properties to use those files. This way it may not be able to get the cache working, but at least it bypasses ASP.NET when the image is fetched. Thus eliminates at least one step.

We will continue to research the cache issues and see if we can find anything......."

Thanks for the immediate response ... Let me elobarate the problem in detail ...

I have three drop down lists (let us say d1, d2, d3). when page loads d1 loads, d2 is depends on d1's selection value and d3 load depends on d1&d2's selection value. I used call back panel to achieve this cascading drop down list ..
here is the code ..

<asp:DropDownList id="d1" runat="server" CssClass="mycheckoutDropdown" AutoPostBack="true" OnSelectedIndexChanged ="d1_OnSelectedIndexChanged" >
</asp:DropDownList><br/>
<br/>

<eo:CallbackPanel runat="server" id="CallbackPanel2" AutoDisableContent="True" Triggers="{ControlID:d1;Parameter:}" LoadingDialogID="loadingDialog" >
<asp:DropDownList id="d2" runat="server" CssClass="mycheckoutDropdown" AutoPostBack="true" OnSelectedIndexChanged = "d2_OnSelectedIndexChanged" >
</asp:DropDownList>
</eo:CallbackPanel><br/>

<eo:CallbackPanel runat="server" id="CallbackPanel1" AutoDisableContent="True" Triggers="{ControlID:d1;Parameter:},{ControlID:d2;Parameter:}" LoadingDialogID="loadingDialog" >
<asp:DropDownList id="d3" runat="server" CssClass="mycheckoutDropdown">
</asp:DropDownList>
</eo:CallbackPanel>

<eo:Dialog TopMost="True" ID="loadingDialog" runat="server" BackShadeColor="LightGreen" Visible = "true" BackShadeOpacity="30" >
<ContentTemplate>
<table border="0px" width="226px" bgcolor="Orange" cellpadding="0" cellspacing="0" >
<tr>
<td align="center">
Please Wait ...
</td>
</tr>
<tr>
<td align="center">
<asp:Image ID="Image1" runat="server" ImageUrl="~/images/indicator.gif"/>
</td>
</tr>
</table>
</ContentTemplate>
</eo:Dialog>

Problems :
1)When the page load is delayed, assume that the the user gets a chance to play with drop down lists which will do a post back and rebind the drop down lists, in this case the page freezes and LoadingDialog remians on the screen for ever ..
2)The page load is delayed and remin like that for ever ...

Is replacing built in images solve this problem ?

Thanks for the response ...

The problem I explained above is not happening always with same test case ... It is getting freezes very few times and when it freezes ..... the progress bar shows this kind of message "(31 items remaining) Downloading picture http://<domain name>/WebApp/eo_web.ashx?id=Oed0550f-16dd.........." I thought it is because of the loading time and user is using the partially loaded page which is making the page freezes ...

I do not expect EO team to adress my code errors/issues. The reason I am posting here is, I am trying to determine what is causing the issue as it is urgent for us to fix.

I solved my problem by restructuring the page design. I am not sure what exactly solved the problem but. I restuctured the page with all the valid html tags(no closing tag missings, no red underlines in the html/asp.net code, properly nested table structures) etc ..