Why can't Zoho mail display Base64 encoded PNG?

Why can't Zoho mail display Base64 encoded PNG?

I was testing Firefox 4 and I noticed that I was able to cut-and-paste an image from the Windows XP Clipboard into a Zoho Email Compose UI. However the receiver (also using Zoho mail) does not see the embedded image, even though the email source shows the encapsulated PNG image in the email. But if I send to her yahoo account, she sees the embedded image. For some reason, it appears that Zoho email is not correctly parsing the embedded PNG image, while yahoo can.

Is there some setting that I can change to make Zoho email correct parse the encapsulated image? This could potentially provide the much needed cut-and-paste (from clipboard) functionality in Zoho email

Below is an screen shot that I cut and pasted from clipboard using FF 4. Let's see if this forum software can handle it: