lucy24 - 11:11 pm on Nov 24, 2012 (gmt 0)
Does Google look at the image on THEIR domain
Google doesn't look at images on anyone's domain. It gets every image in isolation.
Hotlinking is one of those areas where a human has the advantage over a robot, because we're seeing it in context. The googlebot just has a shopping list that says "pick up suchandsuch dot jpg". With rare exceptions it comes in without a referer-- and that means the picture comes through loud and clear for them, because with equally rare exceptions, hotlink routines make an exception for blank referers.
It would be interesting if Googlebot-Image made one simple procedural change: name the originating page as referer in all its visits. Now that it can tell what a picture looks like (see assorted threads from, oh, a year or so back) it should be easy to tell which one is a picture of the Eiffel Tower at dawn and which one is a four-color png blaring NO HOTLINKS. And return its results accordingly.