Directory-specific .htaccess is outside my area of expertise. (Actually, htaccess in general is o. my a. of e., but I speak pretty fluent RegEx, which is 90% of most questions.) I've got one directory with its own htaccess calling on a directory-specific error document, and find with interest that it says
ErrorDocument 404 /paintings/nopage.html
even though we are already inside the /paintings/ directory.
I have no idea what your hosts mean by "script issue". It would not surprise me to learn that they don't either. Your rewrite as originally written ought to work. When testing, did you do the routine stuff like clear your browser cache so it isn't feeding you a pre-existing copy of the image?