I tried running it locally, and it worked OK for me.
I'm running PHP 5.2.6, Apache 2.2.8, GD 2.0.34 on a Windows Vista pc. I viewed it in both Firefox 3 and IE 7.
Maybe just for the heck of it, you could try adding the following headers:
<?php
ini_set('display_errors', 1);
error_reporting(E_ALL);
$image=imagecreatefromjpeg('rmnp8.jpg') or die('create failed');
imagefilter($image, IMG_FILTER_GRAYSCALE) or die('imagefilter() failed');
header("Content-Type:image/jpeg");
header('Last-Modified: '.gmdate('D, d M Y H:i:s', time()).' GMT');
header('Content-transfer-encoding: binary');
imagejpeg($image);
(Note: I have a different original image filename in the above code.)