All of the images I try to select from the Media Library are defaulting to "Full size" - not "Thumbnail". If it helps at all, I initially went straight for image-landscape-9001.jpg (which was part of the previous unit test data) but got exactly the same for every image I tried to select.
Is there anything else I can try that might help?
What happened when you inserted the image? Did it respect your choice, or revert to the default value?