(with an arrow pointing to the letter ‘r’ after the first backslash)
Error: illegal character
Line: 1, Column: 1
Looking at lazyload.js I see a few weird lines in the beginning that don’t seem to belong there. Oh, and generally I see a lot of weird backslashes. Could it be that something in the character encoding got screwed up when you saved or uploaded your file? This is the file you should use: http://www.appelsiini.net/download/jquery.lazyload.js, or, for better performance, the minified version (press Ctrl/Cmd+S to save any of these files).
That said, the second quoted error most likely results from the first error in the lazyload script. But still, I think you’re missing the DOM ready function for that one:
placeholder : "images/grey.gif",
effect : "fadeIn"