Fla8/cs2.0 - Help with Using Liquid Effect with a "Loaded Image"

I am using the Liquid Effect tutorial posted here at Kirupa.
http://www.kirupa.com/developer/mx2004/liquify4.htm

I can get the effect to work on a movieClip with an image within the library, however, when I load an external image into a movieClip, it does not work. The tutorial does state the effect works with loaded images, but his tutorial focuses only on images already in the library. The author is no longer available. Any help would be greatly appreciated.

Thank you.