First, check to make sure the syntax is correct. The ArcXML Programmers Reference Guide describes the correct syntax for the COORDSYS, FEATURECOORDSYS and FILTERCOORDSYS tags. This reference guide is available in the documentation on the ArcIMS Installation CD.
There were a few issues with the projection of image and raster layers at ArcIMS 4.0 that have been resolved at ArcIMS 4.0.1. If you encounter problems projecting images or rasters, it is highly recommended that you upgrade to ArcIMS 4.0.1. For more details on the raster projection issues at ArcIMS 4.0, please have an authorized caller contact ESRI Technical Support. Suggested methods to contact ESRI Support are in Related Information, below.