That is not a bug.
This is part of a temporary fix for an IP leak vulnerability discovered in Firefox related to its
file:// handling. See the blog post and the bug on the bug tracker. The behavior was added in 7.0.9 and will likely be changed to a more complete fix when the vulnerability is made public. Until then, the behavior you are seeing is a stop-gap measure to protect from IP leaks.
This temporary mitigation works by blocking embedded resources in resources loaded from your filesystem, while still permitting loading a resource directly. In fact, their temporary solution for the inability to click links is to load the link directly. This is what you are seeing. An embedded image does not load, but when it is opened directly by itself, it displays fine.