What is the difference between setting ASCII and HTML?
Setting the file to ASCII will result in the image to be sent as raw (unformatted) ASCII characters in the email (which assumes that the recipient reads their email in a monospaced font). HTML will format the image to be a specific font with the appropriate foreground/background colors.
The image looks a bit distorted
Adjust the font height to counter this effect. Note that what you see may not be what the mail recipient sees, since they may have a different font for their email which has different line height metrics.