What I am seeing on the page in the sidebar is the code, for example in the sidebar I put an image and text, and it is showing the code but not the image:

<img src="http://localhost:8888/silverstripe/assets/Home/_resampled/StripThumbnail-home.jpg" title="home.jpg" alt="home.jpg" class="destwidth=" />

If I look at the source of the page it shows the tags are not rendering properly:
&lt;img src="http://localhost:8888/silverstripe/assets/Home/_resampled/StripThumbnail-home.jpg" title="home.jpg" alt="home.jpg" class="destwidth=" /&gt;

Is there something I need to change in the TinyMCE? if so what would it be?

Can anyone help with this html problem? is it to do with TinyMCE? What do I need to change?

Is this something to do with the HTMLEditorField.php?

Can anyone offer any advise? I still haven't managed to get the problem solved

That output looks like it's being xml escaped. You mentioned that you were using $Sidebarcontent.XML before so it's possible that the template is still cached, so try flushing the page.

If it's not that, then I have no idea.