RTF really isn't terribly good for images. Because RTF is an "interchange file format", images are stored in a very inefficient manner; a single 100kb JPEG image added to an RTF file can increase the size of the RTF by 5MB or more.
Using a "real" eBook format such as, say, Mobipocket or ePub would be a lot better. A tool such as "Calibre" should do a decent job of conversion.
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