Why doesn't TextExpander touch support images embedded in text?
The iPhone's text views do not support rich text and images. The Mail application is an exception because it uses an HTML editor rather than the standard text view. There's also a bit of a Catch-22 in that the iPhone does not include code to access rich text strings as stored in your snippets and so there's no way for us to convert them to HTML "on the fly" on the iPhone. Perhaps we can improve this, though even if we do, it will only work for pasting into Mail.