Effect of Images on SEO?

I am currently deciding to keep all the images of my blog on the same server I am on, or to use an external source like photobucket or flickr or facebook. And I was wondering how google would consider the site if I link images from an external source or if I host them myself? Would hosting the image on the website itself give more value to the website or it does not matter?

My experience is that hotlinking your own images to display them on your blog, Google likes.

Also think about the effect on images appearing in Google Image search results, which is effectively bonus traffic.

Google flows pagerank down image links so keep them on your server. If you don't care about pagerank then serve them from somewhere else.

Definitely your server.
1) Images should load faster off your server.
2) You can change them more easily.
3) You can use your own filenames more easily for added SEO benefit.
4) You can organize your files more easily.
5) Google images traffic (as mentioned).
6) Pagerank benefit (as mentioned).