Well, I wasn't imagining it… it works exactly as Walt describes:
press the "Replace Image" button in the toolbar
in the file dialog click "Options" and choose to embed instead of linking
I just tried it and the file size plummeted as expected.
What I can't find anywhere though is a setting in preferences to make linking the default.
Anyway it looks like we're getting there
This is on Mac, AD 1.7.0
If you select the Move tool, and click on the image in Designer, you should find a button on the Context toolbar that says "Replace Image".
If you're on Windows, and Designer 184.108.40.206 or later, then at the bottom of the file selection dialog, just above the input box for the file name, you'll see an option to either Link or Embed the replacement.
(The 1.7 beta of Designer provides an option in Document Settings that specifies whether placed images should be linked or embedded by default.)