Should there be insulation inside the heating/cooling duct?

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While working on our bathroom, I removed the ceiling vent to clean and paint. There is insulation, not the one with the fabric cover, as far as we can see up the duct work. We are on the south Texas coast and I only have experience with evaporative cooling systems, not central. From every thing I know, insulation should never be where it can get into the air. Please help, I need all the info I can get. It's a townhouse built in 1980. Some spots of the insulation are hanging down, tried tape and it wont hold.

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