title_body: Authoring Kindle ebook from MS Word document - how to prevent pictures from stretching?
upvoted_answer: I would like to answer my own question.
  
  What did not work
  
  If you convert the DOCX to MOBI using the Export option of Amazon's Kindle Previewer tool then you are going to face the problem with images stretching horizontally
  
  What worked  
  
  
  Convert the DOCX to filtered HTML (Save As dialog)
  Use Calibre to generate a MOBI file by pointing it to the HTML file that was exported out of MS Word
  I had to fine tune some settings in Calibre (e.g. show ToC at the beginning). But, the result is very close to what I had expected.