I have Outlook 2016 in a stand alone configuration (not corporate policy, just my laptop). When I receive email messages that have images embedded in them they always show up as attachments, not where they are supposed to in the message. When I send messages to someone else outside the organization with PGP they aren't seeing the same issue, even when we respond back and forth.
I am not certain what may be causing it to be treated this way or how to solve the issue.