This looks like a string buffer problem, as it inserts different pieces of text into the same spot. And it appears to only happen every second edit.

https://en.wikipedia.org/w/index.php?title=User:John_Vandenberg/test&action=history&offset=20130727021955&limit=4

The testcase is fairly small now
https://en.wikipedia.org/wiki/User:John_Vandenberg/test

My process for reproducing the bug is to open the page in VE, merge the first two paragraphs (i.e. bring 'other Hindu views' up to the 'and'). Review.
If that doesnt trigger it, edit source, remove a word further down in the page, save, and remove the process in VE.

Steps to reproduce:

1. Create a page with

"
abc

def gh

[[File:Andrew-W.K.-The-Party-All-Goddamn-Night-EP-2011.jpg|thumb|right]][[Sambanthar|Thirugnana Sambanthar]] of the [[Shaiva Siddhanta]] school.
"

2. In VE, the image is not editable. Place the cursor at 'c', press space and then delete: converting the first line to "abc def gh" - press save, review changes.

(note that the diff looks good. Do not save.)

3. In Source Editor, after gh add ' ij' and save

4. In VE, repeat step 2

(note the diff is a mess)

Confirmed any image does this; and tested in Chrome and Firefox.

Here is another case that looks similar:
https://en.wikipedia.org/w/index.php?title=Persian_language&diff=prev&oldid=566108307

Sorry for getting to this bug so late.

I can't reproduce this bug at all. However, I have a number of confusions and questions about the bug report such that I don't know if that's because the bug has been fixed, was never present, or I just can't understand it… :-(

"In VE, the image is not editable."

What does "not editable" mean? You can't move? Can't resize? Can't add a caption? Can't delete? Doesn't appear?

"(note the diff is a mess)"

Is it? What kind of mess? Details help a lot in a complex system so we can tell whether we can reproduce or not. Is the VE still the same VE that you had open in step 2 (with the changes made to the text line into "abc def gh", and the WT changes made in step 3 also made but in parallel to the edit)?

See https://www.mediawiki.org/wiki/VisualEditor:Bug_52107 for my testing page.

Am provisionally marking this as "WORKSFORME", which is very unsatisfactory. :-( Happy to review if we can have further information.