When using a Merge/Cutout/Intersect/Inheritance feature, with the reference type set to LOCAL, the preview image of the base model is in the WRONG location. This is when the feature is undergoing an EDIT DEFINITION with the part opened (not active in a subassembly).
The response from R&D on this is that it is working as expected. The added note is that the outline is not the preview and that the Merge/Inheritance has no quick preview. The outline seen is from the active collector.
This is not intuitive as the image shown during the edit definition is incorrect, whether you call it a preview or active collector. This is confusing and should be fixed.