Using Transparent Photoshop images placed into Indesign CS5

Placed a transparent photoshop image with clean/beautifully sharp mask inside my Indesign design.
Added a drop shadow with Indesign and gave plenty of space with the outside frame thingy.
However when I export the PDF my round image mask shows a blunt ugly edge on my perfectly round masked circle. The photoshop image is perfectly round... How come Indesign blunts the right edge?
The image is not being clipped by the frame, I have given it plenty of space. This seems to be a CS5 issue as my coworkers who have similar file setups on their CS4 files get no circle blunting! We just got the proofs back today and is not just a quirk of the pdf rendering on our screens.
Thanks!

Ah, says I'm using acrobat 5 compatibility setting. My flattener options seem to be greyed out at PMrip ?
Does this look like it should?

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Using Transparent Photoshop images placed into Indesign CS5

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