Yes, they can be stored as BLOBS. I would recommend only doing it this way if you have to. It can really affect performance.
Unless there is some reason why I can't I prefer just storing the path and letting the file system take care of the rest. It is faster. You do lose any SQL Server Security this way though and you are at the mercy of Windows security. I believe you can store images or files up to 2 gig in SQL Server.
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