I don't understand how I'm generating all this horrible html code

No that is obvious.

when the only problem I seem to have is that the picture is not displayed

Looks can be deceiving.
But your problem is obvious, you dont have a directory called /pics on your webserver, yet that is the link you send to the browser! It does seem you have a /cgi-bin/pics/ but that tries to execute the image as a cgi-script, which does not go well.

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