Image Links with Local Images do not Function Correctly and are not Displayed Normally

I agree. This is unexpected behavior in Reading View. The test cases are valid CommonMark (see Example 517).

Here’s a screenshot comparing Source view, Reading view and Live Preview. I added numbers to each test case for easier comparison.

SYSTEM INFO:
	Obsidian version: v1.6.7
	Installer version: v1.6.5
	Operating system: Darwin Kernel Version 23.5.0: Wed May  1 20:12:58 PDT 2024; root:xnu-10063.121.3~5/RELEASE_ARM64_T6000 23.5.0
	Login status: logged in
	Catalyst license: supporter
	Insider build toggle: on
	Live preview: on
	Base theme: adapt to system
	Community theme: none
	Snippets enabled: 0
	Restricted mode: on

RECOMMENDATIONS:
	none

This is how Typora (left) and Marked (right) render the same file: