Node Changes of the nodeapi function of other modules do not get reflected in the saved node

Reproduction.
-Create a CCK node called domain
-Create a new module - mymodule
-Create the hook-nodeapi as follows
function mymodule_nodeapi(&$node, $op, $teaser = NULL, $page = NULL)
{
if ($node->type == 'domain')
{
switch ($op)
{
case 'insert':
case 'update':
$domain = preg_replace("/^http:\/\//i", "", trim($node->title));
$node->title = preg_replace("/^www./i", "", $domain);
break;
}
}
}

Edit the node and enter http://www.abc.com as the title and save the node.
The message shows that abc.com has been saved however http://www.abc.com is actually saved.

I havde assumed that the node changes are meant to be allowed since the node is passed in by reference otherwise it would seem senseless to pass the node in that way.

Thanks,
KT