Issue with Finder in Panther

I've only just locked this problem down so I don't know if it's Panther-specific yet.

When an image file (which can be previewed in its icon state) is dragged onto the Sidebar, it represented as its preview. Because this image is 'live', the system needs to have access to the original item to be able to display it. If the original location of the file is inaccessible, the Finder will get stuck in an infinite loop when a new windows is opened, thereby hanging the system.

So the easiest way to fix the problem is to ensure the original item's location is accessible. This allows the Finder window to open normally and you can then remove the alias.

Alternatively, if the original location is not available, remove the alias' entry (enclosed in <dict> tags) from the com.apple.sidebarlists.plist preference file.

Has anyone else experienced this issue? Seems Apple needs to rework how certain files are represented in the Finder (e.g. by using a thumbnail database file like XP does)