This page lists all instances but also recommends some random ones with medium userbase and high uptimes. The idea of Lemmy is that users are spread out. Lemmy.world is massively inflated with users.
You can have pictures in comments, just not hosted on lemm.ee. Proof:
Image uploads have always been size-limited on lemm.ee because sunaurus anticipated it becoming an issue, if you were planning on using lemm.ee as an image host you were on the wrong instance in the first place when he shut uploading down completely. What you do get with lemm.ee is everything else being snappy.
When we updated to 19.whatever a couple months ago the admin (founder? idk what the appropriate term is) pushed out some changes that allowed image uploads as long as they were below a certain size
IIRC lemm.ee disabled all image uploads following one of the waves of attacks a few months ago. It's possible this has been since reverted as things had died down for a bit there.
I've seen embedded photos so sporadically that I imagine if they were gone (for a while or right now) I wouldn't have noticed. But I know it has been a thing at some points