Not sure if I have understood the concept properly, I expected the 72 dpi image to look smaller at 96 dpi because if 72 pixels represented 1 inch for that image, then in the new configuration 96 pixels represents 1 inch. And therefore I expected the 72 dpi image to look smaller. But is not the case. Infact, it was just he opposite. The 72 dpi image look bigger @ 96 dpi. Why? Is it like WPF will always default to 96 dpi when it comes to images?
Update Why is that, even at 120 dpi (setting system dpi to 120), only 96 dpi image fits 200x200 box perfectly?
You are making some odd assumptions about the nature of device independent nature of WPF's graphical units.
A device independent pixel in wpf world is worth 1/96th of an inch regardless of the screen settings. This is why only the 96 dpi experiment is correct.
Secondly, your monitors native dpi has an impact
The second scale factor, the “DPI setting”, is what we will vary in our tests. WPF doesn’t independently know what your monitor’s actual physical DPI value is. Instead WPF uses the current setting of this second scale factor the “DPI setting”. If the “DPI setting” does not match the true physical DPI, then WPF’s “resolution independence” will appear to break — although it really doesn’t.