For inline images to appear in emails without being attached to them they need to be downloaded from a remote server when the message is opened. While Outlook likes to go the safe route of the attachment — remote images can not be displayed if no there is no net connection when the message is opened or if the remote server is down, and since they pose a privacy risk many users disable them —, it can also be configured to use references to remote images.
Send Newsletters and Emails with Images not Attached in Outlook 2002 and Outlook 2003
To include inline images in newsletters and emails without attaching them in Outlook:
- Select Tools | Options... from the menu in Outlook.
- Go to the Mail Format tab.
- Click Internet Format.
- Make sure When an HTML message contains pictures located on the Internet, send a copy of the pictures instead of the reference to their location is not checked.
- Click OK.
- Click OK again.
- Make sure the image is accessible over the internet.
- Place it on your web site, for example.
- Note the URL of the image.
- The URL of an image could be http://email.about.com/library/graphics/bl_sp082102_75.png, for example.
- Insert the image inline in an email in Outlook.
- Make sure you do not use the Browse... button but paste the URL under Picture source instead.
- Continue editing the message and send it to the mailing list or individual recipient.
Newsletters with Images not Attached in Outlook 2007/10
Outlook 2007 always sends copies of all inserted images as attachments. Add-ons such as PoliteMail allow you to send newsletters using remote images, though.

