In the inline-uploading.php, when you select to use the original and send it to the editor, the height attribute is still included in the img tag, making the image appear as a thumbnail.
This problem seems to be isolated to IE only and the problem appears to come from the lack of quotes around the attribute value (in this case height). The simple workaround I have right now is to add the following line into the sendToEditor Javascript function (around line 431):
After:
h = o.innerHTML.replace(new RegExp?('\\s*(.*?)\\s*$', ), '$1'); // Trim
Add:
h = h.replace(new RegExp?(' (width|height)=.*?', 'g'), ); // Drop size constraints
This strips the height and width constraints without quotes.
I have noticed this problem in versions 2.0 and up (including 2.04).