Any time an element is displayed in a browser, it has to be downloaded from the server. With option 1 (images in .swf), they are downloaded all at one. With option 2 (loaded dynamically), they are still downloaded, but not until requested by the movie. Theoretically, once they are loaded the first time the .swf will pull from cache. But, I have had some odd experiences with caching in flash. I would suggest doing a search for flash image caching and see if that can be controlled somehow inside the .swf.
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"Political Correctness is a doctrine, fostered by a delusionary, illogical, liberal minority and rabidly promoted by an unscrupulous mainstream media, which holds forth the proposition that it is entirely possible to pick up a turd by the clean end."
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