Your talking to different animals.
Yes if you allow a file size of 2.91MB for a attachment it will show as a url link unless you also specify what size in bytes for a inline image.
Max Size for inline uploaded images
If an image is attached to the post, if it is smaller than the specified size (in bytes) it will be displayed in the post.
Found at:
Control Panel » Display Options [-] Topic Display Options
Also the size of the image is also a setting at:
Control Panel » Feature Settings-General
Max width for images used in posts?
Specified in px. Uses browser scaling. Leave blank to disable.