Note: Please test in more than one browser and mention in a comment which ones you've used.

1. Log in as a teacher, go to your course and add a folder resource.
2. Add an image file and an html file (such as the attached test.html).
3. Untick the checkbox 'Force download of files' then click the button 'Save and display'.
4. Log out then log in as a student and go to the folder resource.
5. Click on the image file link and verify that it is displayed in your browser and you are not prompted to download it.
6. Click on the html file link and verify that it is displayed in your browser and you are not prompted to download it.