Originally Posted by frostschutz
How about making it a setting "convert images to jpeg for compatibility reasons", which defaults to on, but can be turned off? Otherwise you'll just have to switch to another mobi creation tool...
The MobileRead Wiki on Mobi file format doesn't mention any compatibility problems, instead it explicitely uses GIF in one of its examples.
There are different flavors of GIF (transparency, animated....).
Some are fine.