Hi George,
As you are aware, the question of images attached to Moodle's Quiz questions is recurrent on this forum.
As you say, it is, of course, quite possible to insert an image anywhere within a Cloze question's text, by using the Insert Image button in the HTML editor. However, what you must understand is that - by using that feature - you insert an absolute link to that image's URL where it is located in the moodle course where you are authoring that question.
- When you export your question (or, rather, the category where that question is located), the moodle XML format does not export your image file, it exports a link to its original, absolute URL.
- If you then import your question to another course on the same moodle or to another moodle installation, then the image's URL still points to its original location.
- In the very likely situation where you are a teacher in both those moodle courses, then, of course you will see the image, because the URL is valid and -very important- you have the rights to display the image, being enrolled in both courses.
- On the contrary, if the original location of the question was in Course A, and you export and import your question to Course B, then, a student enroled in Course B but not enroled in Course A will not see the question. Because they don't have access to Course A where the image is located.
It's a simple as that (unfortunately).
Tim, I seem to remember that - at some stage in the past - there was provision for exporting images, and not just for quiz questions, but other moodle modules as well. Images were included in the export, as a kind of "encoding" and were then "copied" to the new course where the export file was imported. But maybe I dreamed of this. Tim, please correct me if any of what I say above is incorrect.
Joseph