It doesn't look like the kobo ereader can follow a link, at least not in the html format that I gave, but then again, the rubber pad to aid navigation is very limiting, IMHO.
As for the images; I wanted to center them in the page as they were flush left, and found a way to do it, and the overlay problem seems to be solved - I enclosed the p tag in a div that specified text-align:center. The last of the graphics in the diagrams section is not being presented on another page to the penultimate one, but side-by-side. I think this is due to the images being so narrow that they can fit on one page. It's not quite what I expected, but its not too bad, so I'll let the ereader off