An IMG is always an inline-level element as far as HTML is concerned, despite what you specify in the CSS. It is always valid to have an IMG inside an anchor. Specifying display:block, does not make it a block-level element - that is defined by the HTML spec.
However, you may find your page no longer displays as you wish? Is that the problem? I think tedster's suggestion is preferred. But you could also make the anchor a block! (Remember, this would only make the anchor display:block, it is still an inline-level element, so you can't go sticking DIVs in it!)
I didn't seem to have display problems in FF, but I haven't tested it fully yet, was afraid some browsers might throw a fit. Good to know I can leave it as is. I wanted to avoid DIV hell as much as I can by styling elements directly.