I've also run into this same problem as the OP using Java 7 (JRE's 17, 25, 40, & 45 all fail in the same way). Oracle seems to be a wall of silence on this issue as the link to the bug report in the OP only brings up "This bug is not available." Both PowerPoint 2010 and 2007 showed the same crashing behavior, but did discover that an image file drag and drop from a JRE 7 app does work correctly with PowerPoint 2013. Sure would be interesting to know if the problem is a PowerPoint bug or JRE issue. Our customer does not like to hear "upgrade to Office 2013" as a solution, nor do we want to revert back to Java 6!