What's the problem exactly?
You say "first is good" and "next is bad".
Does that mean U7.1b4 is good (since that is first) and U6.6 is bad?
It would help if you said precisely what the problem is.
Anyway, I can confirm this. If you save image 20 after the loop the
saved version is 1024x128 when the flag is zero, i.e. the image is stretched to the next power of two in both coordinate directions. This is correct.
Similarly, when the flag is 1 you get no stretching and the
saved image is 600x100 which is also correct.
However, the paste image command uses the
unstretched version in each case.
If you load the saved image back and paste that you'll get the correct behaviour as illustrated below (you can just see the stretched version at the bottom of the window):
set window on
set display mode 640,480,32
set text opaque
set text font "Arial"
set text size 70
for i=1000 to 1004
message$=str$(i)
rem Print text message and store as image
center text 300,40,message$
GET IMAGE 20, 0,0,600,100, 0
paste image 20, 0,200
wait 1000
sync
next i
save image "test.png", 20
load image "test.png", 21
paste image 21, 0, 400
wait key
end