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If I'm not mistaken, the preview is a preview of the local files (if you're talking about design view, and not actually viewing in the browser). If so, that would mean the image file would need to be in the local folder.
I don't use design view, I just use F12 (or select a browser from the menu) to preview in the browser, from the server, after uploading the file(s). Design view is not an accurate representation, anyway.
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