I have never used live export, but looked for it in its dropdown menu, found it, and clicked it: https://i.imgur.com/0LG6nnS.png
It renders images and doesn't rely on ASCII for its rendering.
I agree Emacs could benefit from some polish, on the whole.
The problem with VSCode's built-in Markdown previews is that they're not extensible, so there are a variety of alternate Markdown renderer plugins, for example to better work with the various wiki-like Markdown plugins. Emacs also has Markdown previewing, but it is extensible by design.
I'm not an expert in either VSCode or Emacs (I use both off and on), but inline image handling seems like it works better in Emacs. I've never figured out how to show Markdown images inline in the actual text editor part of VSCode (as opposed to the preview), whereas that's super easy in Emacs.