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Thanks Tempri and Pinmaster for the hack. I tried this on 2.0.13.2 and was unable to get it to work.
Updated XOOPS system module as well as installed the captcha module.
In module admin the following was OK
Library GD : Installed -- bundled (2.0.28 compatible)
Check of the presence of the class SecurityImage : Installed
Check of the use of the class SecurityImage : Installed
Must have done something wrong