Understood!
This situation looks like the case of using App Variables inside loops (which it allows, but doesn’t work): since Thunkable allows it, it should work or not allow the use in these cases.
So I believe it’s a design/implementation error, but it would help a lot if it was in the online documentation that the block shouldn’t be used for images coming from an HTML link. That way you would avoid wasting time trying to get it working, debugging, searching and asking here.
[UPDATE]
Anyway, I’m happy you find other issue and also will update the Docs.
And I will insert this as feature request here 