I changed host 3 times.
The first time vBulletin was installed, the www. was working fine.
If there was a problem with htaccess or GD/ImageMagick, shouldnt it reflect on my other browser too? Moreover, I asked other people too and they said it was fine. Tried accessing it via Firefox on other computers and it was fine.
So I don't know whether its a firefox related issue or firefox+hosting issue =p
Accessing the picture directly,
http://www.mydomain.com/images/picture.gif works fine. The ONLY issue is when I access it via the page. Weirdest of problems ever!