I'm using Media-7.x-2.0-beta1. When adding an image with the default file display (default file display is identical to Original), it uses the "Medium" thumbnail display. I've checked to make sure the default is not configured to this display.
Where would these settings be saved that I could double check to make sure they were actually changed when I altered them? Is there any other reason for the Default display to be displaying the image in the wrong image style?
After some search, I got your issue and from where you can set that. So I delete my previous answer and following is the updated one.
As in my setting, I have four Image settings,
Now, by default it is taking some height and width.
Now those all four setting you can change at Admin/Structure/File types/Images/Manage file Display and you can find all four image file set on right hand top corner in following images. Now, you can see as I have selected Default and at bottom of the page it is showing None(original image).
Note: Now, image uploaded in the body field area before save/post of the body content may not show what you have selected, but if you post it it will show what you image style you had selected. As stated in following image.
