At some point one of my windows devices (I swear it was my SurfaceGo) had a version of Windows Mail on it that showed version 17 and the inset/foreground images were showing correctly. Days later, I went back to verify what was going on and the version showed v16 leaving me wondering if I was seeing things.. I think there is an "insider / fast-track" option in the Microsoft Windows Store that gets disabled once you login to an O365 business account. I'm wondering if maybe that explains the whole v16 / v17 mystery. I haven't been able to get v17 installed anywhere since.
windows 10 does not support images on top of vml backgrounds. I ran this to ground and we got confirmation from Microsoft's mail team (via a very helpful Litmus developer that worked with me to get a final answer). This issue affects v16 of Windows Mail but I had a device that somehow had a v17 of Mail that did show the images on top. Oddly, I went back to verify this and now I only see v16.. Somewhat of a mystery..