What's the best way to display (and print) rtf files
I found some background to this - Why cannot Pages show pictures in .rtf files?
that Apple decided not to support pictures in rtf because of limitations in the format, but instead to opt to use rtfd format which supports them much better.

The 'fix' would appear to be [without investing in Microsoft Word] to use NeoOffice or OpenOffice, both of which support embedded pictures in rtf files.