Attempted to post from the website and a mobile app. To test, successfully posted a text post and subsequently the same post with the image uploaded directly to Lemmy.
Guessing some spammer or worse was abusing the feature… did think image proxying was coming which might help…
If this was intended behavior, hope someone can link relevant documentation and perhaps it’ll be more easily found by others in the future. (Used lots of keywords in the title for that purpose!)