I think the issue is quite simple: You are using the WYSIWYG editor for creating the questions.

I have this editor switched off and see this:

[code]{if(is_empty(G01Q23), rand(1, 3), G01Q23)}<br /> [/quote]

So there is this <br/> tag at the end, which forced a line break.

And the worst part: it makes the formula a normal text string.

So what is in the equation is either "1<br/>" or "2<br/>" or "3<br/>", but you create conditions for 1, 2 or 3. So these conditions are never met.

Once I deleted the <br/> the text seem to be shown as expected.

So never use the editor for equation questions. I personally have it switched off for everything, just with the option to open it if necessary.