There was something in the back of my mind that said that this wasn't as straight forward as it seems, which is why I made this thread, but it went very smoothly.
I found several old threads discussing this before I saw your reply, and even found one that I started (similar question for a totally different reason), and there was a lot of talk of how buggy the image manipulator is.
It seems that some of it has been sorted, as you no longer need to flip the cropped area.
I did have to have a separate sprite to hold the full image, as crop did indeed crop the image loaded, so instead of loading the main image again for each loop iteration, I just copied it over from the holding sprite.
Many thanks for the nudge in the right direction.
Both the level editor and the game now have fully moddable graphics.