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It must be a limitation of the rich edit control itself. In my tests, a full screen shot (1920 x 1080) displays properly, but a double screen shot does have the behavior you describe, and the same thing occurs when opening externally in WordPad.
One option would be to paste a large image as a separate item into the tree -- the internal image viewer does properly display larger images.
Or edit the item externally in Word.
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