Yes, that is a hotlinked image. Any time you post an image on the forum that is from someone else's website, it is a hotlink. The reason this is so taboo is because you are essentially "stealing bandwidth" from that site, in that every single time that anyone loads up the thread with the image posted, it creates traffic on the hosting site. Many sites have protection against this, but many do not. If you wish to post a picture but do not have the rights (or inclination) to save it on your own image host (photobucket, for example) you should use the URL tag instead of the IMG tag. This will allow users to link to the site, but does not create traffic on that site unless they choose to follow the link.
Hope that clears it up. I'm not too concerned about removing that link. I really just wanted to make the point because I could see that getting out of hand. I'm not exactly a prude, but I've seen some smilies that make me blush.
db
