It is specifically having pictures in an RTF file which makes it large. Each pixel in the image ends up as several ASCII characters in the RTF. Adding a 100kb JPG image to an RTF file commonly makes the RTF file 2-3MB larger. Some of the Dickens books I've created have 70 or so pictures - imagine what that would do to the RTF
No, I'm not particularly "passionate" about LRF files - I no longer even own a Sony Reader (although I used to) - but I do genuinely believe that, for the Sony Reader, LRF is by far the best choice for "reading" format, and we are lucky enough to have a number of excellent tools for creating LRF files - "BookDesigner" and "libprs500" to name but two, both of which have been created by members of this board.