Quite a long time back, I recall there being some hackery done in
Gnus, or perhaps W3, regarding proper inlining of <img src=cid:...>
images within a text/html message.  As I see things today, in
CVS-current 5.8.4, the inlining doesn't happen at all, and instead the
cid:foo identifier is displayed in [square brackets] as the "content"
of the text/html message.  Oddly, even the content ID string dispalyed
is mangled, being cut off at the first `.' -- is that perhaps the bug?

Or is there some knob I'm supposed to have twisted in order to get the
image to inline with the text/html directly?

If you `C-d', you can see all the component parts, of course, but I
wouldn't think I'd have to work that hard -- it's already supposed to
show the image in question.

Test message follows, using a smallish .gif image.  "M-x w3-version
RET" reveals "4.0pre.46", which is current in xemacs-packages.

--karl

"Gnus, or: How I Learned To Stop Worrying And Love HTML"