Yes, the picture *should* show up within the browser as an actual image but the code was wiped out by some virus detection program (overkill) ? The Moodle support people were able to retrieve the old code from their "not-cleared-for-virus" backup version, turn them into images and send them back to me, so at the cost of many hours I was able to reconstitute my lesson.
Anyway, I think you agree that it was an old issue with Moodle 1.xxx, so hopefully it won´t happen again.
Thanks !
Ileana