Thanks a lot for replying.
The img tag that gets inserted by Library Image Insert dialog is in the following format:
It is a "browser-readable" image tag.
Indeed, while doing some trial-and-error editing of the NewsletterContent template (/Sitefinity/Admin/ControlTemplates/Notification/NewsletterContent.ascx), we've discovered that commenting out the "LinkManager" function -- beginning with
Telerik.Web.UI.Editor.CommandList["LinkManager"] = function(commandName, editor, args)
we get a HyperLink dialog widget that works just fine (though you have to enter the URL manually), preserving the image.