It passes the HTML formatted introtext through Joomla content plugins and outputs the results. So images in the article itself should display fine. Aside from that yes you can customize it as it is template driven. The template for article activity can be found below.
/components/com_comprofiler/plugin/user/plug_cbactivity/templates/default/core/display/article.php
Do not modify the default template files though as you will lose your changes when you update. Make a new folder in the templates folder. Example as follows.
/components/com_comprofiler/plugin/user/plug_cbactivity/templates/custom
Now add the paths like the default template. Example as follows.
/components/com_comprofiler/plugin/user/plug_cbactivity/templates/custom/core/display
Next copy over the article.php file. You can now select your template for your stream to be "custom". It will fallback any missing files to "default" so it should only need to include the files you want to change. In this case you'll only need article.php where you can change the article display to whatever you like.
Have also added a feature ticket to see about improving the article activity display.
forge.joomlapolis.com/issues/7904