Hello Andy,
When I test with our latest version(7.1.2.7329) the image I use(a simple jpg) displays in the designer, the preview, and while pulling up the report from the report menu. I have no exact information that this was fixed from your version to mine, but perhaps it was indirectly resolved when another bug was fixed. If we can determine that this is another defect with our application, I'll report it to our development team.
Before you and I get too involved into working on this with your 7.1.1. version, would it be possible for you to upgrade to our latest version? It's free and easy, and would eliminate many possibilities and narrow our available troubleshooting steps dramatically. If you're interested you can watch our installation/upgrade videos, download our latest version, or I can assist you here in the forums as needed.
Let me know if you're willing to try upgrading, and either way we'll keep exploring possible causes for this and find some kind of explanation.
Thank you,
Tom Harder
Axosoft Support
support@axosoft.com1.800.653.0024 option 3--'Fear the Bug' Podcast--