I've seen how Mail Droid does it.
Yes, it keeps the images at original size, but -- renders them, while composing, as small thumbnails. I assume he ran into the same issue with Android system code as I did.
This makes the feature in Mail Droid -- to my mind -- very difficult to use if you need to insert a corporate logo, that sort of thing -- since you'll have no idea what it's going to actually look like.
So -- in Aqua, inline images are not for large pictures, photos, screenshots. They are for small images that *have* to be in the text itself.
For everything else, attachments. Nothing wrong with them. They do not get downsized, so you can send 20Mpix photos, screenshots, etc.