The spec says box-shadow should render on all elements. The inset shadow seems to render behind the contents of the element, this would be fine for all elements except the image element, where it should render in front of the image to serve any useful purpose. You can see this in action on the URL mentioned. The left image does not seem to have any box-shadow, but the right image (which is a transparent version of the left one) has them. Also reducing the opacity of the image does not seem to have any effect on getting the box-shadow to show (but using an image with inherent alpha transparency works). This is a cross-browser issue: Safari/Chrome/Opera/Firefox.
http://dev.w3.org/csswg/css3-background/#the-box-shadow