You have used <?php if($key == 1): ?> it should 0 as the first item is zero.

I would probably use a different approach. I would strip the extra markup and use a CSS solution.

Finally the $key variable should be used under the foreach loop (inside latest.php)
Locate this line
There you have the $itemCounter which is the same thing.

Then you need to change
to

Use it to echo a css class to the following div ONLY for the first item using something like <?php if($itemCounter==0): ?>

Ok, I've done it and also put a div around the subsequent item. How can I add small images and a intro text beside the subsequent items?

You can use CSS resize (Quick and dirty method) or you can hardode the values.

Eg. change echo $this->item->image; to echo $this->item->imageMedium; $this->item->imageLarge etc...

This works both ways. You can set a large image for the first only or the opposite