For some reason the update itself seems to fail for you. Since you are on Windows 7, can you tell me which version of the .NET framework you have installed? Alternatively, you can download and install the latest version directly from Microsoft.
Otherwise, you can also try to just download the latest version of Tropy from tropy.org and re-installing it manually (that alone might not fix updates in the future though).
Regarding the corrupted photos: my guess is that you moved the photos after importing them into Tropy? Future versions will be able to track such movement, but currently you’ll have to tell Tropy again where to find the photos if you move them. You can do that by right-clicking on a photo with the exclamation mark and selecting ‘Consolidate photo’ and, when prompted select the photo again from its new location. Also see this post for an advanced method to update paths if you’ve moved many photos.