In this paper we examine the effects of using an imperfect transform encoder to compress an image. The forward transform is noisy to reflect imperfections in a possible hardware implementation. We find that these imperfections cause unacceptable image degradations unless they are very carefully calibrated out. Particular attention must be paid to the bias of each vector in the transform. To illustrate the concept we present a computer simulation of a hybrid encoder that uses a Hadamard transform on the rows and DPCM on the columns. In a series of images and error pictures we show the effects of different encoder and decoder strategies which use various degrees of uncertainty about the encoder.