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This error may be encountered and replicated when you are using an image in the reporting "Header" tool where the path contains an "&". Yes this is rare, but possible and sometimes you want to keep the path, but can't update the path name. If you select the image in a path with an "&", then you'll get an error similar to the following:
Error: Report Header (36): The Action "Update Image Tool" has an error: ParseError: Unterminated entity reference, 'D' at line 2 and column 19 while processing "Action_UpdateRawXml"