Both have a place. For example, what if I really want to have inlined
MPEG? By providing a generalised linking mechanism to allow both, we
allow maximum flexibility.
If people want inlined images, they can have them, why not apps? Both
are just objects after all. Eventually it might be nice to be able to
inline blocks of text too, and the only sensible way to do it is to
have the embedded document be an object: #include like mechanisms lead
down a long and twisty road to say the least.
All these things are moving the same way: allow arbitrary objects to
be composed to form a single application (in WWW terms, browser + page
combination). That is the future, and it will have profound effects on
both users, and the software business model. I would say for the
better.