First, make sure the source record is private (Sounds like you have set that correctly in admin).
Second, make sure your image is added IN the source, not beside it. See below:
1 BURI
2 DATE 06 OCT 1954
2 PLAC Toronto Ontario, Canada
2 SOUR @S6@
3 OBJE @M6720@ (clipping from news for the source) This will be hidden with the source it is part of
2 OBJE @M6721@ (picture of headstone) This will not be hidden with the source because it is NOT part of it. It is only part of the event
You cannot hide images, only the tag they are contained in.