This is the normal/correct way to do it in Anki. If you paste or attach an image within Anki, it’s basically always pulled into the media database. It would be possible to manually add HTML within Anki to get a hotlinked image, but I’m not aware of anyone ever doing that.
Most users of TiddlyRemember should prefer this method, too, because it doesn’t require you to have network access to see the images, nor do you have to wait for large images to download before you can see the cards. If you have images embedded in your wiki or on a personal device, you might be unable to access them from your mobile device even if you have Internet access, since most people don’t expose their local filesystem to the public internet. Adding the images to the media database means that they are always available when reviewing no matter where you are.
Also, the images aren’t actually “embedded in the Anki database,” they are tracked in a separate media database (and stored as files on the device’s filesystem). Within Anki, syncing media takes place asynchronously and in the background and uses a different comparison mechanism, so once you initially get the images synced across, there is no overhead. Images will only need to be copied once, so it actually uses much less bandwidth overall, and backups of your collection are not bloated by images.
Is there a way to embed the images as links in Anki notes after 1.3.1 instead of the actual images?
No, it always downloads and syncs anything that’s referenced in an
<img> tag now. If this is a deal-breaker for you, you could file an issue and I could consider an option for future releases, but I’d want to see at least another user or two who wants this – I didn’t expect anyone to see this as a downgrade!