Images not showing in Mail, just generic JPG icon...

I have this problem with Mail (v3.6, Leopard 10.5.8) not displaying images in html messages anymore. The problem is mostly with the emails i'm sending. Back on Tiger, you could drag and drop an image and it would show inline right there where your cursor would be in the message. Now it goes at the bottom, showing the generic Preview.app JPG icon with the name and size of the file underneath the icon. If I try to compose a message using on of Apple's stationaries, half of the images are not showing, instead once again giving me the generic icon. I do have the option of displaying HTML images turned on in the prefs. A picture is worth a thousand words, so here it is :

http://dl.getdropbox.com/u/25424/mail_problem.jpg

If I send this to friends, half of them get a correct looking email while the other half gets missing images where the original image was showing as an icon for me. Trying to save the email message as a PDF will have missing images too.

What's going on here? Thanks!!!