Well, there's no reason for me to misrepresent what I'm seeing in the WordPress post when I look at with the HTML editor. Think about it for a minute: why would I lie about what I see, when I'm requesting help?
Second, I used copy-and-paste to make sure I took the post EXACTLY as it's represented in WordPress. I'm a little surprised that you cannot see the code, but let me copy and paste that post once more. This is EXACTLY what the post contains, thanks to copy-and-paste:
Isaac Newton, in a letter to <span class="extiw">Robert Hooke</span> (15 February 1676): "If I have seen further it is by standing on the shoulders of Giants."
The Elder Grandson:
<a href="http://leisureguy.files.wordpress.com/2007/03/grandson-and-einstein.jpg"><img class="alignnone size-full wp-image-3891" title="Grandson and Einstein" src="http://leisureguy.files.wordpress.com/2007/03/grandson-and-einstein.jpg" alt="" width="680" height="509" /></a>
I included backtick characters (aka accent grave) qround the display HTML.
I will try making the changes you suggest, but I fear I omitted the question I want answered:
Why is WordPress not displaying the photo according the HTML?