The problem is I cannot handle the events of the image anywhere...
In the UserControl_Initialize event, the Label is resized to the size of the entire user control. Since the Label has a higher Z-Order than the Image control it is getting all the mouse events. After loading a new image control make sure its z-order is higher than the label control.

Add this line at the end of the UserControl_Initialize event.

VB Code:
  1. capLabel.ZOrder vbSendToBack

  2.  
  3. End Sub