fefrei Felix Freiberger Regular
July 6
As far as I understand, the setting is for more innocent:
Surely it’s all innocent. 
Discourse can use both incoming text-only and HTML-only mails. Text-only mails are simply used as raw Markdown (which does explain the quoting behavior). HTML-only mails are sent through a HTML-to-Markdown-converter, and the result is once again used as the raw Markdown of the user’s post.
That is useful info, thank you.
When receiving mails which have both HTML and text (which is quite common), Discourse normally uses the text version and ignores the HTML part. This setting changes this behavior to instead ignore the text part and treat the mail like a HTML-only mail
That would explain my testing.
When I sent something which had some text bolded when the setting was off, Discourse converted my bold to italics.
When I turned the setting on, the bolding was honoured. The issue, unfortunately, is that it also stripped out the quoted text entirely.
Thus, I have to assume not a solution in this case. 