If you opened the file in a text editor and looked at the data chunk, then that's what you're supposed to see because passages within the chunk are encoded.
If when playing your published file you aren't seeing the image, then the problem lies elsewhere. Does your published file work otherwise? Are you confusing the published file with the data file, which is also an HTML file, within your Twine/Stories directory?
As a final note: I tried your sample code and it worked just fine for me (in Harlowe v2.1.0), both in-Twine 2 and when published.