Yes, I agree that it matches. But also:

my $target = q{
  MM
  oo
 <
  -/
 /^\
      : C :
8===8
 |^|
 |||
-~-~
};

print "Match!\n" if ($target =~ /\/\^\\\n.+C/m);
[download]

also produces "Match!", which it shouldn't.

Also,

my $target=q {
  MM
  oo
 <
  -       ^ ^
 /^\      @ @
: C :    ( o )
8===8     `+'
 |^|     O-X-O
 |||      / \
-~-~      O O
};

print "Match!\n" if ($target =~ /\/\^\\\n.+C/m);
[download]

doesn't match.

The regex doesn't therefore meet the specification of finding one Ascii picture within a larger picture!

Cheerio!
Osfameron
http://osfameron.perlmonk.org/chickenman/