From my experience, the feature works reliably. It’s hard to know what the process another user has gone through when something doesn’t go as planned but what I would speculate is that you selected the image in a different way, and that way generates the text clipping. Here is something you can try to test:
Image: Click the image with the arrow cursor so that you highlight it. You may see the option to show as image or as icon (depending on what was selected previously). The drag and drop should then result in the image being dropped and its size should match the original image.
Actually, while it is somewhat difficult to see as the visual cues are subtle, you can just move your (arrow) cursor over the image, at which point it will get a thin, grey border, then click-drag the image and it will work. The image should also dim slightly when the cursor passes over it. If you move the cursor over the image and then away from the image, and back again, you should see the difference more clearly.
Text clipping: Click in a different column and use the arrow keys to move the i-bar cursor until it is beside the image (and in the same cell) and then, shift-arrow to select the image. If you drag and drop now, you’ll end up with a text clipping ( which is basically twice the size of the actual image). NB you should notice that a small ‘dropdown’ arrow on white background (assuming light mode) will appear on the right edge of the image and it offers ‘markup’ and ‘more’ as options when you click on it. The mouse cursor must be over the image area for this menu button to appear.