Hi Paul,
There was a bug in Word versions 2000-2003 (see
http://support.microsoft.com/kb/209633) that meant hanging indents around shape objects were lost - unless the paragraph used a numbered format. It seems that when MS introduced Word 2007, they replicated the bug - except that it now applies to paragraph using numbered formats as well. Other than using a two-column table, the only workaround is to put the image on the right side of the page.