This reproduces with something as simple as

one two three four

also worth noting this shows the error too:

one two three four

Took a quick look in case it was a simple fix but this is a bit hairy; the "one two" is sort of part of the problem, as for this to work the whole line needs to be inside the <p> tag and in this code path it ends. PhabricatorEmbedFileRemarkupRule is the pertinent class name and renderImageFile is the method that's going to need some work, plus whatever higher level stuff for the "one two" bit.