Kappy, you can definitely wear dresses! Don't let one bad experience stop you!
From looking at the dress you tried on, I agree with the idea that something with more of an a-line skirt might make more sense. I personally find straight skirts can be difficult to wear--they have the potential to look great, but the sizing and cut really has to be just right. I'm a size four hourglass and I find that straight skirts often highlight my stomach bulge.
However, I wouldn't even necessarily give up on the dress you bought--I think it could possibly work if it were a size or two bigger. It looks too tight near the armpits as well as the skirt, so it could just be that Calvin Klein cuts his size 16s a little small. I recently went cocktail dress shopping at Macy's and had this problem with several brands, including Calvin Klein.
I went online and found some things I thought might look good on you:
http://shop.nordstrom.com/s/su.....tback=5776
http://shop.nordstrom.com/s/js.....ltback=939
http://shop.nordstrom.com/s/ad.....ltback=954
http://shop.nordstrom.com/s/ad.....tback=5776
http://shop.nordstrom.com/s/ad.....tback=6373
http://shop.nordstrom.com/s/ka.....tback=2904 (Not sure if the sizing would work, but it has sleeves, and that's so uncommon!)
http://shop.nordstrom.com/s/el.....tback=4408
Sorry if I went overboard with the links!