There is a LFI vulnerability because:

    /imgs../flag.txt

Transforms to:

    /path/images/../flag.txt

I've only implemented a handful of HTTP servers for fun, but I've always resolved relative paths and constrained them. So I'd turn "/path/images/../flag.txt" into "/path/flag.txt", which would not start with the root "/path/images/" and hence denied without further checks.

Am I wrong, or, why doesn't nginx do this?

It does when you use the root directive. Alias should hardly be used if possible for those reasons.