Making or Modify Link to existing image erases the image

Making or Modify Link to existing image erases the image

Repro (works reliably for me in Firefox 2):

- With two Firefox windows open, one showing an image (URL ending in ".jpg") and the other showing Zoho Writer, drag the image from the other window into Zoho.
* Observe: the image appears embedded in Zoho Writer's layout as expected.
- Then, right-click the image and select "Make Link..."
- Enter any valid URL and click OK.
* Observe: The image suddenly disappears and you're left with a text hyperlink.
> Expected: The image should stay and be linked.

I seem to recall this working in earlier versions, so I wonder if it's a new bug.

Thanx for the help!