Thanks for your help.
I have upgraded to calibre 0.6.23 but it still wouldnt work, and I was manualy editing the fille to replace the brackets.
However, I have got it working perfectly with all images and book downloads and it turned out that the problem was in my batch file. I change the original command you gave in your post to the following :
Notice I removed the single quotes from arround the http link. That was causing it to fall over as the href produced in the xml file had extra single quotes in it.
Well done though, what a fantastic way of getting a mobile book library.