See Screenshot. The server-icon is smaller and shows in the upper-left corner of the icon image. This icon shows correctly in the previous versions.
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I just updated the server to the 1.16 Pre_release 8 and the server-icon looks correct again. I guess it was unique to the 1.16 Pre-release 7 version? Screenshot attached.
Forgot about the fact that screenshots are pretty useful, though this has occurred in the official 1.16 release in my experience.
I've been having this same issue in my local Minecraft server on the official 1.16.5 version and I found that it only changing the server address from "localhost" to my local IP "192.168.1.*" it made the image change to expected size. Then changing it back to "localhost" made the image appear again, hence and repeat. Also changing it to "localhost:25565" (the default port I use) makes the image look normal.
The funny thing is that the server wasn't running at the time of the changes and yet the effect was instantaneous, thus the problem has something to do on how Minecraft client handles the server icon when the address is exactly "localhost".
What's the resolution of the server icon?