This seems to be a upgrade Amazon added a while after the Kindle 1 was introduced. If the Amazon PDF converter detects a "complex" PDF it gives you a MOBI of images back instead of a mostly-text MOBI (PDF reflow) back. This is definitely an improvement over Windows MobiPocket Reader (or Creator). For direct conversion to images, see
PDFReader 1.8.2 works great with Kindle and
PDFRead 1.8 released!.