qgis - Is there a way to prevent labels from being on top of everything else?

I'm having a problem in QGIS 1.7.4. The labels I have produced for one layer are overlapping an entirely different layer that has a higher precedence. This should not happen. Am I doing something wrong or is this a bug?

And just to make sure my question was clear, I'm asking if there is a way to prevent labels from being on top of everything else regardless of layer order