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There's a lot of content - so we would end up having lots of images on our site that are hosted on the partners site.
Does this have any drawbacks with regard to search engines? Would hosting copies of the images locally be better? Should I use htaccess?
If the partner doesn't have any objection to you hotlinking to the images on its server -- and using the bandwidth that goes with it -- it can save overhead on your server (just look at the properties for any image on this page to see how Brett handles it), and this can be important for a high traffic site with a lot of images.
You should also consider your partner's server performance. Are many other sites pulling images from the partner's server? Does it impact the load time of your pages? Etc., etc.