A1: probably, although that's more processing power. The tool I used to fix it would have outputted a second image file if the extra data had been an image, which is then a weird case to handle. (Upload both? Make 2 links?) Certainly, it could output a better error message though.

A2: Should be lemmy-wide, although technically a malicious server could disable that somehow, which I think would only affect their local users. ie: don't make an account on a server you don't trust.

A3: It is a server specific setting. It's easy enough to change the setting. Bigger limits uses more storage which costs money

A4: Possible, I would think. No idea if that's ever on the devs' roadmap. I think that would be added to the pict-rs code which is then used by the lemmy server.
Both are open source projects, so an instance implementing this could then share the code so it's eventually a feature for everyone.

I've ran into bugs before on some public image host I don't remember where it wouldn't strip metadata if you uploaded an album. It's probably a good practice to strip metadata before uploading, although much less convenient. I double-check that it still works here from time to time, doubly so after upgrading versions.