Engineering noted that this issue has been fixed and will be part of Tridion Docs 15.
Possible workaround: Change the placement attribute to break vs. inline. Testing this in-house, the image did break properly but remained an icon when an image was contained in a <ph> element. When put in a <fig> element, the image displayed as expected.Note: placement="break" may need to be added to the image element in the library file. Adding placement="break" to the image in the topic itself may not show the image correctly. For example, in the library file, the image element should look like the below:
<image varid="preview_test" placement="break" href="GUID-EB7897D7-BA17-4EB8-9F82-F2E6544C765" />