I've not investigated extensively yet, but I'm able to change the source code:
Code:
<div class="illus">
<img alt="" class="img065" src="../Images/lsh-23-065.png"/></div>
to:
Code:
<div class="illus">
<img alt="" class="img065" src="../Images/lsh-23-065.png"/>
</div>
(simply dropping the closing div tag to its own line) to make the plugin work just fine. Even a quick mend and prettify BEFORE running the plugin ensures that your plugin doesn't drop the closing div.
It handles all conditions where the opening and closing divs around images are on their own lines just fine.