xul editor not showing inserted images

Hi,

I am developing a Thunderbird addon. As it needed a rich text area, I
 - created an XUL editor element in a window
 - set its editortype to "html" in the window.onload() function
 - set its designMode to "on" in the window.onload() function

I also created a toolbar of buttons like bold, italic, underline,
strikethrough, indent, outdent, left-justify, right-justify, link,
image etc..

But when the image-button in the toolbar is clicked and an image is
selected, the image is not loaded in the editor, although the place
holder and the alternate text appear in it.

1. Initially the following error message was dumped to the javascript
console - "Security Error: Content at about:blank may not load or link
to file:///home/username/image.png". Then I elevated the previleges
for "about:blank" by adding a few CAPS preferences so that
"about:blank" has the previlege to load local files.
2. But now no error message is dumped to the javascript console, but
still the image is not displayed in the editor in the window. When the
image dialog box is opened, the preview of the image can be seen in
it, but the image is not displayed in the editor, only the image place
holder and the alternate text appear in its place (in the editor).

I am using Thunderbird-2.0.0.23.

Please suggest a solution.

Thanks in advance.