Two sites with similar content - how to handle SEO?

[setzer]

Ok, not sure if the title fully explains what I'm doing, but here goes. I have two sites covering widgets pretty extensively, one site is more general in scope (news/commentary/information), while the other is a database of images focused on widgets.

I have pages on the general site that currently contain the images from site #2, with a link to it at the bottom.

Is this the preferred method of handling this? Both sites rank, but they are competing against each other. Sometimes site #1 ranks over site #2. I thought about getting rid of the extra pages on the general site and just linking to site #2 directly. But this may confuse visitors as the layout and structure of site #2 is completely different since it only contains images. I'm actually fine with the current setup, but I don't know if I'll get a penalty in the future for what I'm doing?

[tedster]

I'm actually fine with the current setup, but I don't know if I'll get a penalty in the future

I wouldn't advise making changes based on worries about the future. After all the junk Google threw at sites recently, if you're still doing fine, I'd let it ride.

What you're doing doesn't sound like a big deal to me - especiallu because it's common to host images for a site on some other hostname or domain simply to speed up page loading.